There’s been a lot of talk about Spanish 10 year bond yields rising to 7 percent. We’ve been at higher levels in 2011 but at that time the EUR/USD was trading much higher. 7 percent is a critical level because that is the rate that pushed Greece, Portugal and Ireland to beg for aid. The orange line is the EUR/USD and the white line is Spain’s 10 year bond yield. That divergence is looking ugly!
Just for fun, here’s the word cloud for ECB Draghi’s Press Conference Introductory Statement
Both the Bank of England and the European Central Bank will be making monetary policy announcements on Thursday. The market expects the ECB to remain on hold and BoE to increase their asset purchase program by GBP 50 billion. A quick look at the following tables explain why the BoE is expected to ease and the ECB is not. Since the last monetary policy meeting, Eurozone economic data was neutral / mixed to bullish. U.K. data on the other hand was neutral / mixed to bearish.
We have FOMC and ECB meetings in the next 24 hours. Here’s some info on how economic data has fared since the last meeting.
US: Not Doing So Bad
ECB: Nothing but Weakness, Skirting Recession
The Federal Reserve, European Central Bank and the Reserve Bank of Australia have monetary policy meetings scheduled this week and some investors expect these central banks to change monetary policy. Here’s what the market is pricing in according to interest rate futures. You can compare them with the Central Bank expectations back in September. What is interesting is that the market does not expect the ECB to cut interest rates this year even though many economists predict a 50bp cut in December.
FED – Nada for 2011 and 2012
ECB – 25bp rate cut by July (sharp upgrade from Sept when rate cut expected in Dec)
BOE – Nada for 2011 and 2012 but slight shift to dovish bias
BOC – Rate Cuts now expected in 2012, down from rate hike by April
RBA – 25bp Rate cut by Dec – upgrade from 100bp by year end
RBNZ – No Major Changes, Rate Hike Expected July 2012
And here are the details: