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News & Views: Thursday, September 4


What you need to know for today's trading day.

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

Exclusive: ECB debating ABS, covered bond purchase plan (Reuters)

Poroshenko Flummoxes Investors With About-Face on Truce (Bloomberg)

Bank of England Resists Change to Interest Rate (NYTimes)

NATO Casts Doubts Over Putin's Commitment to Ukraine Plan (Bloomberg)

U.N. says $600 million needed to tackle Ebola as deaths top 1,900 (Reuters)

The ECB decided to cut all of its rates by 10bps across the board. Although it is being called a "surprise" the majority of strategy notes I've read in the past two weeks have been calling for such event, but it seems that most were only thinking some asset purchase program would be announced. Irregardless, the consensus trade had been to fade the possible move through a long EURUSD and that is quite astoundingly being unwound. Also, judging by the response in the Euribor curve (the European money curve) which moved as much as 10bps in the openin spike, a fair amount of people were surprised. We'll have to see how things work themselves out after the short-term traders unwind their positions. Lastly, the strength appears to be growing in USD as other currency pairs (GBP, AUD) are also moving strongly.

The more clear talking point is the leak through Reuters calling for a EU500bln ABS and covered bond purchase program to take place over three years. This volume is slightly ahead of where forecasters had been thinking the ECB would do. They had seen between EU50bln-150bln per year simply because the ABS market is not as large in Europe as it is in the US, for example. It was enough to move the needle in some of the crowded trades such as EURUSD.

The Bank of England stayed on hold keeping its rates at 0.50%. Last month we learned that two members of the Monetary Policy Committee (MPC) - Weale and McCarthy - dissented and pushed for a rate hike. However, judging by the post-meeting speeches by Carney and his deputy Broadbent, in addition to the minutes themselves, these two are being marginalized as the minority and are not framing the discussion for the MPC. They are merely throwing water balloons from the edges of the table.

Yesterday there was $24.25bln in IG credit issuance, the highest single day of the year, and combines for $45bln in the past two days. Fifteen issuers priced 26 different tranches. On Tuesday there were no HY deals and yesterday there was $5.85bln sold. According to the Bloomberg survey, dealers are expecting $119bln in IG issuance this month. At this rate, we might get to that in this week alone.

It's a big day on the macro front so keep an eye on the headline ticker. The ADP private payrolls report is at 8:15am ET, Draghi's statement and jobless claims at 8:30am ET, and ISM services at 10am ET. The last piece of economic data is unlikely to move the needle. There is also four Fed speakers (two hawks, one dove, one moderate) scheduled to give speeches in the afternoon, all of them voters.

There's more geopolitical yelling going on in Europe with NATO joinig the conversation, and Ebola is getting worse in Africa, but the situation continues to change hourly in both places. For now keep focusing on the ECB as it will be a main talking point for the rest of the day, and may overshadow NFP tomorrow morning.

Overnight Data:
- German factory orders MoM (Jul) up 4.6% vs 1.5% expected, prior -2.7%
- Australian trade deficit narrows to -1.359B AUD vs -1.75B exp, prior -1.564b
- Australian retail sales MoM (Jul) up 0.4% vs 0.4% exp, prior 0.6%

Twitter: @MichaelSedacca

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No positions in stocks mentioned.

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