The ECB (European Central Bank) is expected to have a Governing Council meeting at 1:45pm CET, which has been keenly watched by investors since Mario Draghi, the governor of the ECB, mentioned the possibility of financial easing in this meeting.
EUR/USD, which has been depreciated since the last meeting, is now traded at 1.36. As was explained in the former article, the current rate is a bit undervaluing the currency for a mere rate cut, but 1.35, which is the rate where we may buy the currency in a short term, expecting no QE in this meeting, is also far.
The best time to sell the euro should be after the conference if there was just a rate cut in the meeting, motivating Draghi to watch the consequences for months and disappointing investors, which would cause the appreciation of the currency. In this case, we’d need to continue to carefully watch the statistics about the inflation.
German government bond
The 10-year German government bond, which has been appreciated either in risk-taking or risk-avoiding markets since the end of last year, has been a secret weapon of global-macro hedge funds. Now many of the investors, however, are presumably thinking of the exit. Though it’s hard to estimate the peak of the government bond boom, the best time to buy is clearly already gone.
Speaking of the American treasury bond, it’s known from experiences that it goes up with expectation of the QE, starts to be depreciated at the beginning of the QE and fall with the end of it, whereas the Japanese government bond is being appreciated even after the QE was actually started.
So what would be the case of the German bond? It will be at least partly answered by how the investors react to the result of the meeting. At least, the bond won’t be appreciated just for a rate cut. We assume it’s the moment to reduce the position and watch how the market reacts.
The property companies based on major European cities, such as GSW Immobilien of Berlin (Google Finance), have been very much appreciated, although there are still some at a reasonable price that we can buy. Gecina went up by about 10% after the introductory article, but P/B is still around 1. Although there are some uncertainties in how the negative rate would affect the mortgage market, if the investors get disappointed with no QE, and the stock prices fall, it will be the great opportunity to buy. Watch carefully the ones that are not too expensive.