What now, Dr. Aghi?

Hard as it is to believe, it's already been three months since the latest of Mario Draghi's game-changing announcements.  Say what you will about the man, but he's not afraid to move the needle.  (Of course, the fact that a repeated series of game-changers has been required says something that's perhaps a bit less flattering.....)

In the interim, financial markets have performed more or less as Signor Draghi might have hoped.  The euro is lower more or less across the board, which must come as a relief given  his recent concerns over the exchange rate.   Government bonds have of course ripped, with Bunds at one point tacking on a full 10 points in futures terms; German cash ten year yields are now less than half of what they were a year ago.  The only disappointing asset class has been equities, though between the Ukraine conflict and Espirito Santo they've faced headwinds that the other asset classes have not.

So what now, Dr. Aghi?  You have James Bond (or at least his German cousin, Jakob Bund) right where you want him.   Will you press the button that buries him forever, or give us a lot of pretty words to describe your unnecessarily complicated scheme, thereby giving him time to escape from your clutches when your back is turned?

Past form certainly indicates the latter.   To be sure, the growth and inflation forecasts look likely to be nudged lower yet again.  All else being equal, this would provide cover for a further policy shift.     However, it's not clear to Macro Man what another deposit rate cut would accomplish; after all, money market rates have plummeted over the last few months, and it is not in any way certain that trying to shunt EONIA solidly into negative territory is going to have a positive impact on the banking system.   Indeed, it's easy to construct an argument that it would be a net negative..   At the same time, with the first TLTRO just around the corner, there is a jolt of liquidity stimulus coming down the pipeline.

While it is possible that the work on an ABS program has been progressing more quickly than expected behind the scenes, the realpolitik  of European policymaking is such that we almost certainly would have had some major leaks if such a program were around the corner.  As such, Macro Man expects Draghi to live up to his alter ego's Bond-villain stereotype and do a lot of talking but not much doing today.

What will it mean for markets?   According to Macro Man's little EUR/USD model, the euro has overshot modestly to the downside.   A correction of a couple of cents wouldn't go amiss, though it would probably need a weak payroll number to return the pair to its "fair value" of 1.3400.  (Macro Man is still trying to get the full dataset to populate his charts.)  If it gets there, one might credibly expect an orderly queue of sellers looking to establish/add to shorts.  Macro Man has to admit that he'd be tempted to join them.....