David Zervos Nails The 'Crazy' Stuff Happening In Europe, And What Mario Draghi Will Say Today
Basically his message is: Relax.
Europe has tried to stage a comeback as a "risk-off" force in the global markets after essentially losing all its relevance in the last 3 to 6 months. Somehow, with Italian 2 year yields at 1.60%, I cannot get very excited about the prospects of Europe staying in the "doom and gloom" limelight for very long. Of course the Berlusconi poll surge, the Rajoy cookie jar scandal and the Hollande call for a "stable" (read weaker) Euro currency policy are unsettling - but this is Europe after all, crazy stuff happens all the time. The reality is that the ECB balance sheet is firmly in place as a back stop - it really doesn't matter what a bunch of cacophonous politicians do on the fringe. We all own the Draghi put (without having to pay any theta), and we have to trade like its a line item in our books.
As for what this means for Mario Draghi's press conference coming up later today, expect a dovish bent to his words.
...assume Mario tries to talk down BOTH funding rates and the Euro. He will likely highlight the risks of further economic deterioration and will not give the doomers any gasoline to throw on this little European risk-off fire. And with some calmer words in the press conference, we should snuff out any Europe induced risk-off fears.
Sounds good.