If you want some foreshadowing, I've got you covered here. As such, let's get straight into this.
25 bps or 50 bps?
This seems to be the main thing that everyone will be watching first. As the ECB is set to deliver its first rate hike in 11 years, there are still questions surrounding how much the central bank will move. 25 bps was pretty much a given right until early this week, where there were reports suggesting that policymakers could consider moving by 50 bps instead.
The odds coming into today suggest that market pricing is pretty much a coin flip, even if economic estimates are siding with a 25 bps move. That tees up quite a dilemma for the euro and European bond yields in interpreting the immediate decision. A 25 bps move will see the euro fall alongside yields while a 50 bps move will see the opposite reaction.
That said, the latter scenario may see euro gains be short-lived as there are still plenty of economic headwinds for the currency and the region in the months ahead. A 50 bps move today will do little to change those circumstances.
Anti-fragmentation tool announcement
Too little time. That's my view on the matter as the ECB has rushed things in order to try and appease markets but have found themselves pressured by Italy's political upheaval at the moment. The thing I fear is that markets will leave disappointed when the ECB offers a lack of details and no strong views on the exact functionalities of the tool, and that could see bond spreads blow up - much more than they already have after Italy's predicament earlier here.
As I type this, the spread between 10-year Italian and German bond yields has widened to 237 bps on the day.
I would expect Lagarde to exert the notion that the tool will have no limits and no conditionality. It will take the best parts of the other tools from the ECB aimed at dealing with spreads but again, can words really cover it? If it doesn't and markets are not satisfied, the euro will have to suffer yet another gut punch before the week is over.
