#EUR Crosses & dovish #ECB:
▪️ EURUSD claims next big fig; on 1.13-handle; most FX stronger vs EUR (chart vs Nov FOMC)
▪️ ECB to increase upper limit for cash as collateral for Securities Lending (75 to 150bn)
▪️ LAGARDE: Conditions for rate hike very unlikely to be met 2022
1/8
▪️ EURUSD claims next big fig; on 1.13-handle; most FX stronger vs EUR (chart vs Nov FOMC)
▪️ ECB to increase upper limit for cash as collateral for Securities Lending (75 to 150bn)
▪️ LAGARDE: Conditions for rate hike very unlikely to be met 2022
1/8
f/e Euro bond futures lower on doubling of limit to 150bn for cash as collateral=>possible easing of collateral shortage in repo mkt
But last utilization only 15.5bn (Sep monthly avg) & peak daily util 40.8bn (Jun21)
FYG
DU Euro Schatz ~2y
OE - Euro Bobl ~5y
RX - Euro Bund ~10y
But last utilization only 15.5bn (Sep monthly avg) & peak daily util 40.8bn (Jun21)
FYG
DU Euro Schatz ~2y
OE - Euro Bobl ~5y
RX - Euro Bund ~10y
Lagarde:
▪️ pandemic challenge isn't over yet
▪️ energy >50% of headline inflation
▪️ inflation boost from reversal of German VAT cut to fall out of calculations from Jan22
▪️ wage growth next yr potentially rising somewhat more...but risk of second-round effects remains limited
▪️ pandemic challenge isn't over yet
▪️ energy >50% of headline inflation
▪️ inflation boost from reversal of German VAT cut to fall out of calculations from Jan22
▪️ wage growth next yr potentially rising somewhat more...but risk of second-round effects remains limited
Lagarde:
"Despite current inflation surge, outlook for inflation over m/t remains subdued & thus these three conditions very unlikely to be satisfied next yr"
"Overall, continue to foresee inflation in m/t remaining below our new symmetric 2% target"
What three conditions?
4/8
"Despite current inflation surge, outlook for inflation over m/t remains subdued & thus these three conditions very unlikely to be satisfied next yr"
"Overall, continue to foresee inflation in m/t remaining below our new symmetric 2% target"
What three conditions?
4/8
ECB Conditions for rate hike:
1⃣ “until inflation reaches 2% well ahead of end of projection horizon”
2⃣ "inflation to reach 2%..durably for rest of projection horizon”
3⃣ “progress in inflation sufficiently advanced to be consistent with inflation stabilising at 2% over m/t”
1⃣ “until inflation reaches 2% well ahead of end of projection horizon”
2⃣ "inflation to reach 2%..durably for rest of projection horizon”
3⃣ “progress in inflation sufficiently advanced to be consistent with inflation stabilising at 2% over m/t”
▪️ Owner Occupied Housing OOH to be included eventually (2026?) into HICP Inflation
▪️ HICP to remain as main reference inflation index during transition period
▪️ Prelim estimates - HICP including OOH about 0.20% higher than current HICP inflation rate
6/8
▪️ HICP to remain as main reference inflation index during transition period
▪️ Prelim estimates - HICP including OOH about 0.20% higher than current HICP inflation rate
6/8
*ECB STIMULUS USES OPERATIONAL CEILING OF 50% OF NATIONAL BONDS
More from Frederik @fwred
7/8
More from Frederik @fwred
7/8
https://twitter.com/fwred/status/1460232003568107520?s=20
▪️ 1m EURUSD ATM Vol jumped from 4.60 to 6.40 vol over last wk - partly as 1m expiry date now captures Dec FOMC
▪️ Significant spike in EURUSD Option volumes - daily notional touches 30bn v/s daily average 10bn (highest in last 3m)
▪️ Significant spike in EURUSD Option volumes - daily notional touches 30bn v/s daily average 10bn (highest in last 3m)
https://twitter.com/VaradMarkets/status/1459500372200853511?s=20
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