The Biggest Week of the Year (redux)

(Shift-F9), though it would no doubt be churlish to point out that the 'melt-up' has occurred on fairly dismal volume in both cash and futures.

It's yet another version of "The Biggest Week of the Year TM" this week, with both the ECB and payrolls queued up for the market's trading pleasure on Thursday and Friday.  Although Macro Man doesn't have time today to scroll a lengthy piece, a few of his thoughts are sketched out below.

* After the lengthiest song and dance since "In-A-Gadda-Da-Vida",  it must surely now be put up or shut up time for Draghi and the ECB.  After last month's "subtle" foreshadowing, expectations for the ECB to deliver something are now virtually universal.   A rate cut remains far and away the most widely held forecast, though a significant minority of punters evidently think there's a solid chance of something more substantive, such as a QE-type program.   Macro Man remains sceptical on the latter score; that the ECB is circulating discussion papers on how to boost securitization merely confirms that there is insufficient paper for them to engage in large scale asset purchases quite yet.

* Today's CPI is forecast at an ultra-low 0.6% y/y.  If the figure comes at or below that expectation, it should provide sufficient cover for another staff forecast downgrade, which itself will be the excuse for justifying policy action from the governing council.  Given Draghi's comments in March, Macro Man can only wonder how the staff will shift the "December 2016" numbers.   Of course, if CPI shocks to the upside, there could well be a few euro shorts/fixed income longs that come under modest duress.

* Although five data points is hardly statistically significant, it is nevertheless interesting to see what markets have done into and out of prior ECB meetings this year.  As the table below indicates, yields have tended to rise into the ECB and decline immediately after (at least partially a US payroll effect, no doubt.)  The euro has exhibited a modest tendency to rally during and after the ECB announcement.  Given that BOBL yields are down 13 bps and the EUR nearly 3 big figures since just before the last ECB meeting, it would hardly shock to see the pattern hold this time around as well.

* Eurodollars have failed where they were "supposed" to, e.g. the November highs.  It will be interesting to see if 10's and bonds can maintain a bid tone if ED's trade on the back foot this week.

* A similar analysis to the one above suggests fixed income might struggle until Friday, at which point it will trade very well indeed.   Interestingly, Spooz have rallied from Tuesday to Thursday before payrolls every month this year.  (Of course, it is a given that Tuesday's a winner, innit.)

* 1 month USD/JPY is now at all time lows.  6 month vol, while not at all-time lows, is at its lowest level since Mrs. Watanabe was in her heyday in 2007.   Macro Man doesn't know when the next 6 vol move in 1 month yen is going to be, but he has pretty high conviction on which direction it's gonna be.