Will Mario Draghi Expand Credit in the Eurozone?

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Market Drivers for May 27 2014

Dollar bit weaker in Asian and early European trades

UK BBA loans miss

Nikkei 0.23% Europe -.09%

Oil $104/bbl

Gold $1284/oz.

Europe and Asia:

JPY Japan CSPI 3.4% vs. 3.3%

CHF Employment 4.19M vs. 4.21M

GBP BBA Mortgages 42.2K vs. 45.2K

North America:

CAD Corporate Profits 8:30

USD Durable Goods 08:30

USD Consumer Confidence 10:00

It’s been a very quiet session of Asian and European dealing with both London and New York just coming back to the desks after a long holiday weekend. The dollar weakened a bit in Asian session trade, but both the pound and and euro gave up most of their gains, while the comm dollars were a bit better bid amidst very little newsflow.

In UK the BBA mortgage figure missed to the downside printing at 42.2K versus 45.2K eyed confirming the recent slowdown trend in UK housing demand. The news send cable back to session lows of 1.6840 after the pair traded as high as 1.6881 in Asian session trade.

The decline in UK housing demand provides BoE policy makers with more time to normalize the rates as the pressure from asset classes eases. Nevertheless Charles Bean the retiring deputy governor with responsibility for monetary policy predicted Sunday that UK rates are likely to rise to 3 percent over the next three years as the BoE adopts a “baby step” approach to tightening monetary policy.

Although the focus in UK remains on tightening, the story in the Eurozone is all about easing. Today, all eyes in the currency market will be turned to Mario Draghi who is speaking for the second day in a row at the ECB forum on central banking. The ECB President hinted yesterday that the central bank is ready to move on rates, but today traders will look for clues as to whether the ECB will also create a new program to buy ABS debt in order to help spur lending the region.

Experts remain divided about the feasibility of securitizing small and medium company loans but European monetary policy makers are clearly concerned about the lending transmission mechanism in the region and hope that an ECB sponsored program would create a unified and centralized market for bank loans that would help to jump start economic activity in the region.

In North America today the calendar is subdued with only Consumer confidence and Flash PMI data on the docket. Indeed this whole holiday shortened week may be extraordinarily quiet as the markets prepare for much more important event risk next week that includes the ECB meeting and the NFP report.

Boris Schlossberg
Managing Director

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