After the surprise move on Friday by the Bank of Japan speculation is now gathering pace that the Bank of China may follow suit in adding further stimulus to its economy by cutting the reserve ratio rate for banks. The reserve ratio is the amount of depositors cash banks have to hold on the balance sheet. The Bank of China last cut the reserve ratio for small banks in June.
All eyes will be n the ECB later today, particularly after the Reuter’s news story suggesting tensions within the members of the central council. Mario Draghi who has turned decidedly greyer since he took up the chairman's post must look forward to the first Thursday in each month with some trepidation.
The questions will at least be predictable later in the day, is the buying of corporate bonds on the agenda? Are tensions increasing between Germany and the rest of Europe growing again? How wedded are the ECB to the 1trillion euro expansion of the ECB balance are the council? Will probably be amongst the favourite. The problem may come for Mr Draghi at the press conference if, having been fairly open in the past months with his answers, probably as he understood markets could get sceptical of platitudes, he now becomes more defensive.
The reaction on Tuesday from equity markets to the possibility that Mario Draghi was under pressure from the other members of the council was apparent, what is more important is the reaction in peripheral bond yields.
Yields in Spanish, Greek and Italian bonds in particular have fallen sharply during Mr Draghi's tenure, any sense his position is under threat could see a sharp reversal. Peripheral bond yields rose on Tuesday, which had to be expected, but so far the rise has been modest and they remain close to the lows of the past few months, indicating that the equity market reaction was a little over done.
One would think the other members of the council would be lauding Mr Draghi for his success in bringing confidence back into the euro zone, not be chastised for the way he went about it. He knew what needed to be done, and had the conviction to do it. Writing this one is reminded of Margaret Thatcher, she knew what needed to be done, but also realised she would ruffle feathers along the way, and that was a price worth paying. One gets the sense that Mr Draghi may be cut from the same cloth which is good news for the rest of us.