ECB review and Saudi bond sale – ADMISI

What did Mario Draghi say that led to a sell-off in EUR/USD from the high of 1.1039 to a low of 1.0877? Marc Ostwald, Strategist at ADM Investor Services International believes the FX markets are back to playing interest rate differential.

Ostwald details what piece of information by the ECB sent out dovish signal….leading to a drop in Euro and explains how the bank has set the bar of expectations very low for December meeting. HE also talks about Saudi bond issue.

Key points

Draghi did not drop hints on either side, but the comment that there are no signs of a meaningful rise in inflation was read as dovish by the markets

ECB is likely to look through energy driven high inflation and would want to see a rise in underlying CPI

Atlanta wage growth tracker showing a healthy rise in wage price inflation. FX markets are thus back to playing interest rate differential

We are in a world of financial repression and positive index based investing

The key proof of QE success is whether the central banks can get out of it

ECB is walking a tight rope. Bar of expectations has been set very lot for December. Anything more than a six month extension of a QE program would be a shock to the markets

Saudi bond sale – shows they are borrowers now and not lenders