It is not the European Central Bank?s style to keep the markets guessing about what they will do with interest rates at their next monetary policy meeting. Usually, they like to suppress market volatility by letting everyone know their plan months in advance. The fact that their message is so convoluted this time indicates that they too have yet to figure out what to with interest rates.
The ECB has not officially convened since August 2nd. Yesterday, they released a press statement saying that they are sticking to the monetary policy stance expressed by Trichet earlier this month, but today, comments from a senior official at a Euro zone national central bank suggests otherwise. Reuters quoted the official as saying “If there is a normalization in the markets a rate hike is still possible. If not the ECB will wait with the next step.” Rate hike expectations have plunged from 50 percent back yesterday down to 20 percent today. This confusion makes Monday?s speech by ECB President Trichet even more important. Hopefully he will clear the air on whether a September rate hike is a done deal. There is a very heavy Eurozone economic calendar that includes the IFO survey, German CPI, retail sales, retail PMI and unemployment. Meanwhile Switzerland will be releasing consumer prices and the KoF report of leading indicators.