Good chance for ECB Key rate cut is here

BAC, GS

The European Central Bank looks like it is getting close an admission that it can no longer ignore the debt crisis and make lame comments about worrying over inflation, and looking for mysterious growth.

The time has come that the ECB adopt a low-rate policy like the rest of the lower growth World of established markets.

I am seeing predictions that the ECB Rate Cut will come during the week of the 4th of July.

Bank of America/Merrill Lynch (NYSE:BAC) is now telegraphing that the ECB and Mr. Draghi could very soon be adopting a Zero-rate policy as well within the coming few months, and BoA/ML signaled that it is too early for the stock and bond markets factoring in the fiscal cliff but it expects it to come up in August to October before the election.

Goldman Sachs (NYSE:GS) expects a 0.25% rate cut to 0.75% from the ECB for its refi-rate, but the timing is not limited to July.

The timing makes us wonder about the overall impact.

The 4th of July is on Wednesday, so many employees are taking off Monday and Tuesday and many others are taking off Thursday and Friday, senior staff may take off the whole week. That said, will anyone in America be there to learn of a rate cut in Europe?

A recent interview with a senior ECB economist hints at a rate cut possibly coming as well, with this hint being as soon as next week, but without a pre-commitment.

The ECB has a roughly 2.0% inflation target and the drop in commodity prices is making this target well above the real inflation rates today. Recent inflation in Germany was said to be well under that 2% threshold. That leaves room for a rate cut or even more cuts.

The feeling here at LTN is that the market wants more than the powers that be are willing to commit now. Even if the ECB steps in with a rate cut it may only be viewed as OK.

Europe's woes are not rate-driven at all, they are structural, and they are cultural.

It is growing more evident each day now that the problems in Europe are going to be leading the headlines for some time to come. If the US enters recession, let us say that the woes in Europe are going to get worse.

A rate cut from the ECB is coming, the question is if it is in July or if Mr. Draghi and friends will wait. If it waits, it may not matter.

Paul A. Ebeling, Jnr.

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster's Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.