ECB wants local banks to walk on their own feets

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ECB prepares for the move

On the eve of a turning-point meeting in October, the ECB provided deeper insight in its plans of tapering off the asset purchase program. A recent statement by the regulator says that commercial banks should increase the amount of reserves to cover toxic debts next year. Such a measure looks like reinsurance before ECB starts to cut supply of money liquidity to banks and could mean slightly more confident pace of tightening. Asking for balance sheet “sanitation” the Central Bank aims to decrease systemic risks while increasing resilience to monetary shocks, though it may restrain credit activity to some degree.

Starting from January 1, banks have only two years to put aside funds for problem unsecured loans and seven years for 100% coverage of all "bad" debts.

Formation of the Fed’s future leadership comes to the fore as a factor exerting pressure on the dollar as the policy of regulator could see substantial shifts if Trump's protege is in power. The president was shown a list of candidates and rumors are circulating that Trump can give preference to Kevin Warsh, a former member of the Fed’s board of governors, who repeatedly took swipes at the bank’s practices. The term of the current leader Janet Yellen expires in February 2017, but there is a chance the composition will remain unchanged as Trump's opinion of Yellen remains mixed.

US data

The pair EURUSD remains calm, trying to pick the course hovering near 1.1750. Weak retail sales in the eurozone have become an unpleasant reminder of the still flaccid consumer inflation, although producer prices rose stronger than expected. Traders are bracing for jobs count report from ADP and welcoming speech by Yellen at a banking event. Given the sharp shift to openness of some Fed’s members regarding December move, the head of Federal Reserve is likely to meddle with market sentiments in today’s speech by making some hints on evolution of views since September meeting. Yellen's speech on the case should allow the dollar to end short-term stagnation. Dollar bets from the DXY level of 93.00 looks like a logical continuation of the trend, which the currency took after the Fed bolstered markets in September. Chances for rate hike in December decreased slightly to 70% according to the futures market data.

Trump's tax reform was somewhat out of the attention of investors in connection with the information lull, but the US currency and the fixed-income market undoubtedly remain sensitive to a sign of progress or failure in its implementation. Positive news on this issue will undoubtedly pull the chances up for the accelerated monetary tightening.

Gold

Gold is in demand before Friday's uncertainty, winning back more than $10 after yesterday's drop to $1.271. Long positions from current levels remain unsafe given the NFP's controversial outlook on Friday.

Oil

WTI futures are struggling for the level of $50 its possible to see short-term drop to 49.50 before the bullish correction. The signs of US oil sector recovery are evident, though today's EIA report will bring more clues on that. Particular attention should be paid to refinery inputs and % capacity utilization. Steep gains in activity could mean faster recovery and deterioration of rebalance hopes which caps price gains at current levels.

Arthur Idiatulin