BOE Keeps Rates Steady; ECB Is Next

The BOE kept rates unchanged and did not increase QE; The ECB rate announcement is next followed by a press conference at 8:30 am. NY session will bring jobless claims, wholesale inventories and Canadian housing starts.

Markets have been trading within relatively tight ranges throughout the Asian and London sessions as traders positioned themselves for the BOE and especially the ECB rate announcements. Main European equities are in red but only marginally.

Despite worsening fundamentals, the BOE chose the wait and see approach and kept rates steady at 0.5% as expected and did not increase the Asset Purchase Facility that stands at GBP 275 bln. Two weeks ago, the OECD noted that further QE by the BOE is warranted and projects that the APF will be increased to GBP 400 bln. The next MPC meeting is on January 12th.

At 7:45 am ET the ECB will announce their rate decision. In a Bloomberg poll, 54 out of 58 economists expect the benchmark rate to be lowered by 25 bp to 1%. Other measures to stimulate bank lending and to cope with the ongoing crisis are also expected to be announced. On 11/30 MNI reported that sources within the ECB had claimed that the central bank is ready to be more flexible with respect to possible rate cuts, collateral framework and bond purchases. Reports also suggest that the ECB could offer 2 or even 3 year loans.

As usual, the ECB press conference which causes a significant volatility is scheduled to start 45 minutes after the announcement at 8:30 am ET. Keep in mind that the EU summit starts today and any remarks about the likelihood of an approval of reforms leading to a fiscal union might underpin the common currency.

The NY session data will include Canadian housing starts due at 8:15 am that are anticipated lower in November at 200K from 208K, US jobless claims are due at 8:30 am and are seen lower at 397K from previous 402K and wholesales inventories that are expected to rise 0.4% in October from previous -0.1%.

CAD traders should also note that the BOC will release its Financial System Review at 10:30 am so the volatility is likely to increase.

Patrik Urban