Societe Generale: Brace for something pretty serious from ECB at next week's meeting

Kit Juckes, a currency strategist at Societe Generale, thinks there will be something serious at next Thursday's ECB meeting.

"He who exercises no forethought but makes light of his opponents is sure to be captured by them".

"The quote’s from Sun Tzu’s "The Art of War" and while I don’t think for a second that Mario Draghi is anyone’s opponent, he is regularly under-estimated."

So what surprising plan might Mr Draghi unveil? One alternative is a "split-level" negative rate, meaning more punishing negative rates for lenders who leave lots of money at the ECB.

"It’s not really obvious that such a policy would drive rates (and in particular, longer-dated rates) any lower, but it reinforces the sense that Mr Draghi is committed to further easing next month," Kit said.

Ken Wattret from BNP Paribas noted to Reuters:

"It cannot run the risk of disappointing markets, having raised expectations of action."

Indeed. Speaking after the ECB’s latest policy meeting in Malta, Draghi revealed that some members of the governing council had favored taking more action to incentivize the economy immediately. He put the blame on the slowdown in emerging markets, including China, for fresh weakness in the eurozone.

"The ECB will almost certainly be delivering an early Christmas present this year," said Nick Kounis, the head of markets and macro research at investment bank ABN Amro.

Draghi is an active proponent of "forward guidance", the strategy of sending strong verbal policy signals in order to shift financial markets – in this case, driving down the euro. As we remember, his promise in the summer of 2012 – in the middle of the Greek debt crisis – that the ECB would do "whatever it takes" to save the shared currency helped to reassure jittery investors.

And it seems that they react more to his words, rather than his actions...