07/09/2012
Rumors Spread ahead of ECB Meeting Thu Sep 06 12 00:29 ET
Rumors of ECB's new bond purchase program spread ahead of today's meeting. While some reported that the program would be sterilized and of unlimited amount, others said that it would not be unlimited. Investors were cautiously awaiting the meeting, looking for President Draghi's announcement of bond purchase related news. Yet, there have been comments in recent days that Draghi would not give much detail about the program at today's meeting as a lot of the specifics have not been finalized. Stock markets changed little. In the Wall Street, the DJIA added +0.09% while the S&P 500 Index slipped -0.11%. In the commodity sector, crude oil fluctuated between gains and losses. The front-month contract for WTI crude oil initially fell to a 3-day low of 94.26 before ending the day at 95.36, up +0.06% while the Brent crude contract dropped for a second consecutive day to 113.09, down -0.95%. Gold price continued to trade below the 1700 resistance level and settled at 1694, down -0.12%.
Bloomberg cited 2 ECB officials that the new bond purchase program would involve unlimited purchases of government debt that will be sterilized (like under the SMP). Yet, the central bank would refrain from setting a public cap on yields and will target short-dated maturities of up to about three years. Later in the day, exactly opposite news was reported from Reuters which stated that the ECB would not announce "unlimited" bond purchases but was, however, prepared to eliminate the seniority status on bonds. To challenge market sentiment more, some rumors said that Draghi would not give much detail about the program at the September meeting as the terms have not been finalized yet.
At the BOC meeting held yesterday, Governor Mark Carney announced to leave the policy rate unchanged at 1% and reiterated the likelihood of rate hike should economic conditions warrant. The outcome was widely anticipated. Concerning economic developments since the last meeting, the BOC acknowledged that the global outlook is "unfolding largely as the bank projected in its July Monetary Policy Report, with a widespread slowing of activity across advanced and emerging economies". Canada's economic developments have also been dragged by global economic slowdown but "underlying momentum remains at a pace roughly in line with the economy's production potential". The BOC forecasts growth to pick up through next year as driven by "consumption and business investment". The BOC is the only major central bank that would consider rate hike at the current economic environment.
Concerning US oil inventory, the industry-sponsored API estimated that crude inventory plummeted -7.2 mmb in the week ended August 31. For fuels, gasoline stocks declined -2.3 mmb while distillate slipped -0.13 mmb. The broad-based reduction in inventories was mainly due to disruption caused by Hurricane Isaac. The DOE/EIA probably reports a -4.95 mmb decline in crude inventory. Gasoline and distillate stockpiles are expected to have fallen, by -3 mmb and -1.55 mmb last week.
