When doves fly

The ECB's thunder was stolen a bit on Wednesday, as three other central banks hit the tape with dovish developments.   The BOJ downgraded their inflation outlook, the BOE minutes revealed that the MPC lost its 2 hawkish voters, and of course the Bank of Canada cut rates, a mere twelvemonth after it first emerged as a tradeable macro theme.  

Lower oil prices were a common thread running  through these announcements; to paraphrase Prince, this is what it sounds like when doves fly.

Speaking of which, today is the day when we (almost certainly) finally get ECB QE.   The WSJ ran a story yesterday suggesting EUR50 billion per month of purchases, which while sizable was a bit less than the Fed bought when QE3 was in its pomp.  Of course, an open-ended commitment to continue these purchases for as long as necessary could render the ultimate size to be quite large indeed.

Of course, questions still remain, even if the WSJ leak is correct.   What bonds will be bought, from which countries?  Will the ECB buy them, or will the national CBs simply buy their own countries' bonds, per last week's report?  Will they touch the depo rate tomorrow, or indeed ever again?

At the time of writing (7 pm EST on Wednesday), the survey has generated 100 responses, roughly half of which occurred before the Journal story.

The results are summarized in the table below:

As you can see, the average respondent expected a total QE size of approximately 733 bio, with a median of 600 bio.  As you can see from the standard deviation, there were a few rather large outliers.   This is broadly in line with the prevailing consensus, and consistent with a year's worth of purchases per the leak.  An open-ended commitment that allows for a potential increase in size could be construed as a dovish surprise.

Roughly 1 in 5 respondents expected a 25 bp depo rate cut, so any move on rates would also be taken as a surprise.   That having been said, punters seem to feel that it's all in the price.   The EUR/USD expectation skews slightly to the high side, albeit with a pretty wide distribution (as seen by the more than 7 big figure SD!)  Curiously, 1.18 was the most common of the 100 responses.

On aggregate, readers expected a modest rally in the Eurostoxx 50, though again, with a wide distribution of responses.  Ironically, one of the tightest forecast distributions was EUR/CHF, where the SD of responses was "just" 3-and-a-bit percent.  On balance, there's not a whole lot here to sway Macro man one way or the other.  He's retaining a very modest euro short that offers plenty of room to add should either news or price offer an attractive opportunity.

Finally, it's perhaps worth noting that readers seem to expect the first Fed hike this September, with that meeting representing both the median and the mode of respondents.   The average response was for December 2016, but was heavily skewed by a few wags inputting 2020, 2038, and 2065 as the dates for lift-off.

One can only hope that these joking forecasts do not come to pass.  If they did, there would no longer be any macro hawks or doves....we'd all be dodos.