All Eyes will be on Mr Draghi today and investors will be listening to his press conference very carefully as there are number of rumours surrounding the market which need to be addressed. But, overall, the main focus will be divided in three sections
All Eyes on Draghi
2. Bond yields
4. ECB QE program
Firstly, Mr Draghi will be very pleased when he will discuss that the inflation, which was the biggest concern for the ECB and one of the pillars for the ECB price stability, has finally not only shown sign of life, but it has also passed the forecast level. A real confidence for the policy makers, because inflation has been dragging the prices lower for a while. On the 5th of March, the ECB predicted 0% inflation until the third quarter of 2015, but the Eurozone core CPI flash estimate reading released yesterday has already printed 0.9% when the forecast was for 0.7%. Most importantly CPI flash estimate also ticked higher from previous reading of 0.0% to 0.3% and this was again higher than the forecast of 0.2%.
The inflation reading has created much buzz in the forex market and has provided fresh blood line for the EUR/USD pair, which has been extremely volatile over the past 24 hours or so. Now, the big question is if the ECB president will increase his inflation target for the 2015? It is highly likely that we may get to hear something on this. At the same, Mr Draghi also need to manage the expectations around the ECB QE, because traders have started to focus on chatter that the ECB could be winding up their QE much sooner as the inflation has ticketed higher. Therefore, on one hand, Mr Draghi will be Hawkish, but then on the other hand, he also need to think that he does deliver the message that the ECB QE will not finish until their desired results are achieved.
Secondly, Mario Draghi has not spoken about the bond sell off, which was the main focus for the markets during the past few weeks, and since the Arpil 15th, when the bond correction started, traders are eager to know the view of the president of the central bank and what he really thinks. The bond sell off was of course due to many different reasons, but one of the dominant reason was that the ECB QE brought the growth in the eurozone and all of its four major economies performed relatively well during the first quarter of this year and this increased the fear that the cash rate may lift off and the ECB may wind up their QE prematurely given that the unemployment is still eye watering.
Thirdly, as I said above, the growth in the Eurozone has picked up during the first quarter of this year and this represents success for the ECB’s QE project. The primary reason was due to the increase in the money supply in the system, which stimulated the lending in the Eurozone. However, the ECB’s official has said that the ECB will be mindful of seasonal adjustability and they will front load their purchase during the month of May and June. But, the recent data released by the ECB shows that the purchase has actually fallen during the month of May and April and this leave this month to make up for all the purchase.
Finally, it will be Greece and investors will be asking if Grexit is an option however, we do believe that Mario Draghi will defend this at all cost and will leave no stone unturned to assure markets that they have very intention to keep Greece in the Eurozone and the 19 nation currency is irreversible.