PARIS (MNI) – The reaction of analysts who listened to today’s
press conference by European Central Bank President Jean-Claude Trichet
can be summed up in one word: underwhelmed.

Markets were hoping for some guidance on likely emergency ECB
actions to counter what threatens to become a full-blown sovereign debt
crisis in the heart of Europe. Trichet gave none.

On the widely rumored and speculated idea that the ECB might step
in with a program to buy government bonds, Trichet merely stated that
the Governing Council did not discuss it. We would not be drawn any
further.

Same with liquidity. He sent a signal that ample cash would
continue to be provided, he dodged the question of whether the ECB would
bring back some of the longer-term refinancing operations that have been
phased out.

Analysts also pounced on a more hawkish turn in the language on
inflation in Trichet’s introductory statement.

Below are excerpts from analysts’ comments:

KENNETH WATTRET, BNP-Paribas: In truth it was a non-event. The
reason for saying that is that before the meeting we had plenty of
speculation that the ECB could do something radical. And what did we
learn? Nothing. They could have announced that they were now ready to
buy government debt. They could have said that they were going to
conduct 6- or 12-month refinancing operations. People were debating
things like these. And there wasn’t a word about this. As far as the
markets were concerned it wasn’t a non-event, it was a disappointment.
The market fears of contagion haven’t been dispelled. Something needs to
be done and at the moment the ECB doesn’t seem to be ready. As far as
the macro-economic analysis goes it was very similar to the previous
month. The one interesting thing may have been this new phrase that
“monetary policy will do all that is necessary to maintain price
stability.” I can imagine this phrase being used if the ECB were to buy
government bonds. During the Q&A, on a number of hot topics Mr. Trichet
was very evasive or didn’t answer directly. It seems the Governing
Council doesn’t know what to do and doesn’t know what is acceptable for
it to do. But we have to act and I wouldn’t rule anything out, even if
for now there was no action.

CHRIS SCICLUNA, Daiwa Capital Markets: Markets are a little bit
disappointed, as Mr. Trichet noted that the governing council did not
discuss bond purchases. But I think markets had unrealistic
expectations. In that respect, clearly there’s a plan A at the moment
based around the current approach to Greece and obviously such an
approach, if necessary, could be extended a little bit further. A bond
purchase program is not even a plan B, but rather it is something for
much further down the road. I do not think there is any particular
surprise in terms of what Mr. Trichet said today.

TORGE MIDDENDORF, West LB: In our view he didn’t say that much,
especially when it came to the question of buying EMU government bonds.
Trichet just remarked that they did not discuss this issue. In our view,
however, it is still possible that the ECB will decide to buy government
bonds if the tension on the markets continues over the next couple of
days and if it is still impossible for some member countries to finance
their needs on the markets. We were already expecting that the first ECB
hike at end of Q2 in 2011, and this becomes now ever more reasonable.

RAINER SARTORIS, HSBC: No surprise to me what he [Trichet] told us
today. The market expected that he would talk more about buying
government debt, but in my eyes that was very unlikely, because it would
not calm the markets, it would increase uncertainties. What he tried to
do was again point out that there is a rescue package and that this
rescue package is enough to help Greece get through the crisis. He also
mentioned that Spain and Portugal are not the same as Greece. He tried
to counteract spillover from Greece to the other markets. There’s not
going to be any rate hike in the near term, due to the crisis. The
likelihood that the ECB will leave rates unchanged for a longer time is
increasing.

HOWARD ARCHER, IHS: The ECB…announced no further steps in, or
potential changes to, its current policy of gradually removing the
extraordinary liquidity measures that it had enacted in 2009 when
financial markets. Having earlier phased out the 12-month and six-month
refinancing operations that were introduced last year, the ECB had
announced at its March meeting that it was returning to ordinary
competitive tenders for three-month loans from April. Mr. Trichet
indicated that these moves had been justified by improving market
conditions and pointed out that some non-conventional measures remained
in place relating to shorter-term funding operations. At the press
conference, ECB President Jean-Claude Trichet displayed a very straight
bat on all matters relating to Greece. He stressed that the ECB’s
decision last weekend to suspend the minimum credit rating threshold on
Greek sovereign debt reflected its support for, and confidence, in the
heightened fiscal austerity measures that Greece is undertaking. Mr.
Trichet completely dismissed the prospect of Greece defaulting and also
repeatedly indicated that other countries were not in the same position
as Greece. He stated that the ECB had not discussed buying government
bonds and gave no indication of any future ECB policy moves that may be
made to help Greece.

DAVID PAGE, Investec: [Trichet] was trying to really dispel some of
the concerns over Greece, talking about default of Greece being out of
the question and trying to minimize the risks of contagion… he
differentiated on a number of occasions between Portugal, Spain and
Greece, saying they were not in the same boat…Aside from Greece there
did seem to be a slight change to the ECB’s outlook. Not a vast change
in outlook but given that it has been virtually identical for the last
two or three months it was noticeable…There was talk…that inflation
had been higher than the ECB had expected and the risks to the ECB’s
inflation projection were therefore tilted to the upside in the near
term, although the medium term was broadly unchanged.

GRUELS KRAUSS, Helaba: Mr. Trichet said that they didn’t speak
about buying government bonds today, but he did not rule out explicitly
this method. For this, it’s not clear what they will do in the next
months and weeks. I think the situation was not clear after the press
conference. It’s still a dangerous situation for the Eurosystem. For
this [reason], the ECB is still alert. Currently, we see a rate move no
rate move this year. [Rate moves this year] will not be the theme. Moves
should come in the second half of next year. Before that, I think there
will be other problems.

LAURENT BILKE, Nomura: The European Central Bank left interest
rates unchanged at today’s governing council meeting. The dislocation of
the euro area government bond markets was not mentioned and the ECB
president said that buying government bonds was not discussed. The only
(slight) acknowledgment by the ECB of the deterioration of the situation
since the last meeting was to swap “environment of uncertainty” for
“high uncertainty”: hardly a significant change. In short, the ECB has
said nothing so far about the fact that Europe now appears to be
undergoing an emerging market-like credit crisis. We were certainly
expecting greater awareness of the issue. On the economy, the ECB made a
slightly hawkish change. The ECB president mentioned global inflationary
pressures on the upside, acknowledging that “looking ahead, global
inflationary pressures may increase, driven mainly by price developments
in commodity markets but that they are still offset by moderate domestic
inflation pressures”. We think the inflation forecast could be revised
up with the next quarterly update in June.

FRANK OLAND HANSEN, Danske Bank: There were a lot of expectations
and rumours in the market ahead of this meeting, so in a sense it was a
bit of a disappointment to many that the ECB didn’t really do anything.
Trichet made a great effort to emphasize how focused they are on the
inflation target. Certainly, when we get on the other side of this
crisis, I think the credibility of the ECB’s inflation target will be
quite high. But, on the other hand, this was just not what the markets
were waiting for. We would have liked to hear him, probably not taking
any instruments into use today, but at least giving more in terms of
moral support — that they have the instruments to combat this crisis,
should it develop further. So, a bit disappointing.

JOERG KRAEMER, Commerzbank: At its monthly press conference the ECB
showed no willingness to buy government bonds of the ailing peripheral
countries. However, we think such a step will not be out of the
question, should the peripheral countries fail to obtain funding on the
bond market in the weeks ahead. Higher key rates are now less likely
than ever, and we have postponed our forecast for the first rate hike by
three months to mid-2011.

–Paris newsroom, +331-42-71-55-40; bwolfson@marketnews.com

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