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All Eyes On The ECB

07 March 2016 by lberuti

Investors were in panic mode 3-4 weeks ago. It is now a distant memory and the market has been regaining poise thanks to higher oil prices and better recent US data, but also on the back of building expectations of action from the ECB at its next meeting on Thursday. Like in December, the bar has been set pretty high for Mr Draghi. One of the measures people think will be announced is a further cut of the deposit facility rate to -0.4% from its current -0.3% level. If the rally gained further momentum today as the ECB’s meeting is drawing closer, one sector has been lagging: financials. Indeed, the market seems decided to price the negative impact of a lower deposit rate for banks into credit spread. Even though this event is arguably more likely to impact profitability rather than credit quality - in particular when the Central Bank is about to provide more liquidity -, protection buyers emerged on both iTraxx Financial Senior and iTraxx Financial Subordinated and made them the notable underperformers of the day