>> THANK YOU VERY MUCH. THAT BRINGS OUR PRESS
CONFERENCE TO AN END. JONATHON: THAT NEWS CONFERENCE WREPS UP
JUST SECONDS BEFORE THE PRESS RELEASE COMES OUT BEFORE ANYONE
CAN ASK ANY QUESTIONS ABOUT IT.
I THINK IF WE HEAR "TPI" WILL MORE TIME, OUR HEADS MIGHT
EXPLODE. I'M JONATHAN FERRO AND HERE IS
YOUR PRICE ACTION.
A 50 BASIS POINT RATE HIKE, THE FIRST SINCE 2011, WITH BACK TO
ZERO ON RATES FOR THE ECB SINCE 2014.
LOOK AT THIS SINGLE CURRENCY. EURO-DOLLAR BASICALLY UNCHANGED
NOW. LOOK AT PERIPHERAL SPREADS AS
WELL. IN GERMANY, THE 10-YEAR IS BASICALLY UNCHANGED AT THE
MOMENT. ITALY IS RUN BY MORE THAN 20
BASIS POINTS, THE TENURE UP BY 25, THE TWO YEAR UP BY 30.
WE ARE NOT FAR OFF FROM THE WHITE OF THE YEAR.
STATESIDE COME ABOUT 15 MINUTES INTO THE SESSION, SHAPING UP
LIKE THIS. WE ARE DOWN ABOUT A THIRD OF 1%
ON THE NASDAQ HUNDRED. TAKE A LISTEN TO THE ECB
PRESIDENT, PRESIDENT LAGARDE. PRES. LAGARDE:
THE GUIDANCE FROM SEPTEMBER IS NO LONGER APPLICABLE FROM NOW
ON, WE WILL MAKE OUR MONETARY DECISIONS ON A DATA-DEPENDENT
BASIS. WE WILL OPERATE MONTH BY MONTH
AND STEP-BY-STEP. JONATHON: WE WILL SEE YOU IN SEPTEMBER.
MICHAEL MCKEE WILL BREAK THAT DOWN FOR YOU IN JUST A FEW
MINUTES.
>> IT IS CLEAR THAT THE ECB HAS BEEN CHANGED BY THIS DECISION.
THAT LANGUAGE FROM CHRISTINE LAGARDE, I THINK IT BEARS
REPEATING THAT THIS DECISION AND FORWARD ONES WILL BE
DATA-DEPENDENT, OPERATE MONTH BY MONTH, AND STEP-BY-STEP.
THE DOOR IS CLOSED GUIDANCE. EVEN THE SEPTEMBER RATE HIKE
THEY SAY WILL BE BIGGER THAN 25, SHE SAYS THAT IS NO LONGER
APPLICABLE. I THINK IT IS PRETTY REMARKABLE
THAT THIS WAS A CLEAR UNANIMOUS DECISION.
IT WAS CLEAR THAT SHE TIED THE TWO TOGETHER.
CHRISTINE LAGARDE OVER AND OVER IN THAT PRESS CONFERENCE, WHEN
IT COMES TO TPI, GOT QUESTION AFTER QUESTION ABOUT ITALY.
SHE BATTED EVERSON THE ONE OF THEM AWAY, AT ONE POINT NOT
EVEN WILLING TO SAY ITALY, ONLY SAYING "THE COUNTRY TO WHICH
YOU REFER TO." WE ARE GETTING DETAILS JUST NOW
ON THE TPI THAT THEY ARE LAYING OUT. SHE LAID OUT FOUR CLEAR
CRITERIA FOR IT. SHE DID NOT SPEAK EXACTLY TO
WHETHER ITALY MEETS THAT CRITERIA OR NOT, IT REALLY
EMPHASIZED ON ALL OF THIS IN TERMS OF WHO GETS ACCESS TO THE
TOOL IS DOWN TO THE DISCRETION OF THE EARNING COUNSEL.
JONATHON: THANKS FOR THE COVERAGE TODAY.
LET'S GET OVER TO MICHAEL NOW. SONALI:
UNFORTUNATE --MICHAEL: UNFORTUNATELY FOR YOU, WE DON'T
GET THE ANSWER THE QUESTION, HOW BIG IS IT?
THEY SAY IT IS GOING TO BE BASED ON THE NEED, RATHER THAN
SETTING OUT AN AMOUNT AT THIS POINT. IT WILL BE USED FOR THE
PURCHASE OF SECONDARY MARKET SECURITIES ISSUED BY GOVERNMENT
AGENCIES IN THE EURO ZONE. JURISDICTIONS EXPERIENCING A
DETERIORATION AND CONDITION NOT WARRANTED BY COUNTRY-SPECIFIC
FUNDAMENTALS, RISK TO THE TRANSMISSION RECORD --
TRANSMISSION MECHANISM, THE SEVERITY OF RISKS FACING
MONETARY POLICY TRANSMISSION, AND YOU ALREADY HEARD THAT
THESE ALREADY HAVE TO HAVE HAPPENED.
THE OTHER FOUR CRITERIA IS THAT ANY COUNTRY RECEIVING THIS KIND
OF AID WOULD HAVE TO BE IN COMPLIANCE WITH THE EU FISCAL
FRAMEWORK AND DEEPLY IN DEBT. THE ABSENCE OF SEVERE
MACROECONOMIC BALANCES, AND OTHER WORDS, IT HAS TO BE NOT
THEIR FAULT. DIFFICULT STATE TO STATE
ABILITY. THEY HAVE TO BE ABLE TO PAY
THIS ACT. THEIR FISCAL PACK HAS TO BE
SUSTAINABLE. THEN, THEY HAVE TO HAVE SOUND
ECONOMIC POLICIES IN LINE WITH THE COUNTRY'S COMMITMENT TO
RECOVERY FUND PLANS. THE KEY HERE, ACCORDING TO
CHRISTINE LAGARDE, IS THAT THIS WAS ALL DECIDED UNANIMOUSLY.
THE GOVERNING COUNCIL WOULD RATHER NOT USE IT, SHE SAID.
BUT IF WE HAVE TO USE IT, WE WILL NOT HESITATE.
THEY DON'T TELL YOU HOW MUCH IT IS GOING TO BE, WHICH MIGHT BE
A DETERRENT TO THE MARKETS FOR PUSHING SPREADS TO WIDE.
BUT THEY DO TELL YOU THAT WE HAVE GOT THE BAZOOKA, WE KNOW
HOW BIG IT IS, AND WE ARE NOT AFRAID JONATHON: HE'S IT.
JONATHON:PRIVATE SECTOR SECURITY COULD BE
CONSIDERED. OVER THE LAST 10 YEARS, IT HAS
BEEN A LINK BETWEEN THE SOVEREIGN AND FINANCIAL SECTOR.
IF WE ARE REALLY CONCERNED ABOUT MONETARY POLICY AND THIS
IS A MECHANISM TO MAKE SURE THAT IS NOT IMPAIRED, WOULD IT
BE A STRETCH TO SAY THEY MIGHT CONSIDER THE DEBT OF EGGS IN
THE EURO ZONE IN THAT PARTICULAR COUNTRY? MICHAEL:
THE WAY YOU READ IT, IT DOES NOT SUGGEST THAT IT WOULD BE
IMPOSSIBLE. THE QUESTION IS, DO THEY REALLY
WANT TO DO THAT? THEY DO PHRASE IT AS "IF IT IS
NEEDED." THAT IS THE QUESTION, IF WE DO
SEEK TRANSMISSION PROBLEMS. IT IS THE TRANSMISSION SYSTEM, NOT
UNDERLYING BALANCE SHEETS, THAT WOULD AFFECT THOSE BANKS AND
OTHER PRIVATE SECURITY ISSUERS. WE HAVE TO WAIT AND SEE.
THEY ARE NOT GIVING US ENOUGH INFORMATION.
IT IS AN -- IT IT INTERESTING THAT THEY ENDED THE PRESS
RELEASE BY TALKING ABOUT THE REINVESTMENT FLEX ABILITY THAT
THEY HAVE AND THE OUTRIGHT MONETARY TRANSACTIONS SYSTEM
THAT THEY SET UP DURING THE EURO CRISIS AND HAVE NEVER USED.
THEY ARE LETTING PEOPLE KNOW THAT WE HAVE ALL THESE TOOLS,
THIS NEW ONE THAT WE ADDED TO OUR TOOLBOX, AND WE WILL USE IT
IF NECESSARY. I GUESS IT WOULD DEPEND ON THE
NATURE OF THE CRISIS WHICH WHEN THEY WOULD GO TO FIRST.
JONATHON: THANK YOU, BUDDY. MICHAEL MCKEE GOT THE PRIVILEGE
OF GOING THROUGH THE PRESS RELEASE.
ESTY DWEK, YOU ARE WITH US NOW. I HOPE YOU'RE STILL AWAKE.
DO YOU THINK ITALY IS ELIGIBLE FOR WHAT HAS BEEN OUTLINED
TODAY?
>> I THINK ITALY IS ONE OF THE COUNTRIES THAT THEY NEED TO
KEEP CONTAINED AND TO KEEP IT WITHIN THE EURO.
I THINK THEY WILL FIND A WAY TO MAKE IT ELIGIBLE.
FROM WHAT WE HEARD REPEATEDLY IS THAT THERE AREN'T SO MANY
UNDERLYING DETAILS. I THINK THIS IS MORE OF A WAY
OF SAYING, DON'T TEST US, DON'T PUSH THE BOUNDARIES ON ITALY
BECAUSE WE WILL REACT. IF IT IS NOT THE TPI, IT IS ONE
OF THE OTHER ACRONYMS THAT THEY STILL HAVE AVAILABLE.
BETWEEN ALL OF THOSE, THEY WILL CONTINUE TO CONTAIN THE SPREAD
AND ENSURE THIS MECHANISM. JONATHON:
YOU HAD YOUR DOUBTS ABOUT THE SUSTAINABILITY IN THE EURO.
NOT BECAUSE OF WHAT HAPPENS TODAY, BUT ULTIMATELY, YOU SEE
A PARTICULAR RATE HIKE IN THIS CYCLE WILL NOT BELONG.
YOUR THOUGHTS ON WHAT HAS CHANGED?
>> NOT PARTICULARLY. I UNDERSTAND THE FORWARD
GUIDANCE FOR NOW. THEY HAVE OPENED THE DOOR TO
LARGER HIKES OR POTENTIALLY MORE THAN 50 BASIS POINT HIKES.
THE FUNDAMENTALS, AND MY PIN, HAVE ONLY GOTTEN WORSE SINCE
JUNE. IF WE ZOOM OUT A LITTLE BIT,
THE ENERGY CRISIS IS STILL A PROBLEM.
ITALIAN POLITICS HAVE GOTTEN WORSE.
THE FACT IS, THE ECB CANNOT INCREASE THE FLOW OF GAS TO
EUROPE. THEY CANNOT CHANGE THE POLITICAL SITUATION IN ITALY.
THEY CAN SIT -- THEY CAN CERTAINLY EURO DOWNSIDE,, BUT
THERE IS SOME SWAY IN LIMITING THAT. JONATHON:
THE GAS SHUT OFF RAISES SOME IMPORTANT QUESTIONS.
SOMEONE CAME WITH THAT PARTICULAR QUESTION.
I THINK IT IS IMPORTANT.
DID WE GET AN IDEA OF THE ECB'S REACTION, HOW THEY WOULD
RESPOND TO A NEGATIVE SUPPLY SHOCK ECHO DO YOU HAVE A DECENT
RATE ON THAT? IF WE ARE TRULY IN A WORLD
WHERE FORWARD GUIDANCE IS DEAD, WE NEED TO REALLY REESTABLISH
HOW WE REACT TO CERTAIN INFORMATION.
THAT IS A CERTAIN -- THAT IS THAT IMPORTANT DATA POINT FOR
MANY OF US. HOW WOULD THE ECB RESPOND TO A
NEGATIVE SUPPLY SHOCK ECHO -- SHOCK?
>> RIGHT NOW, THEY ARE STARING AT A RATE THAT HAS ONLY JUST
GOTTEN BACK TO ZERO. THERE IS ALREADY A CLEAR AND
IN-MOTION RECESSION. THEY ARE PROBABLY GOING TO PUSH
TOWARD HAWKISH GNASH. IF WE FAST-FORWARD TO THREE
MONTHS OR SIX MONTHS IN THE EURO ZONE IS MAYBE IN
RECESSION, AND THERE IS A REAL ENERGY CRISIS, WHICH IS
MANIFESTING IN REAL TIME, AT WHAT POINT DOES THE ECB SAY
THIS IS TOO MUCH AND WE CAN NO LONGER HIKE RATES, AND WORSEN
FINANCIAL CONDITIONS IN THIS SITUATION?
THAT IS WHAT CONCERNS ME ABOUT THE YOUR OUTLOOK INTO THE END
OF THE YEAR. JONATHON: IF YOU HAD ANY IDEA FOR THE
SEPTEMBER MEETING, WHAT WOULD IT BE?
>> I THINK THE REASON THEY DON'T WANT TO MAKE THAT
DECISION IS EXACTLY BECAUSE OF THIS ENERGY CRISIS.
I THINK THIS IS WHAT IS WEIGHING ON THEM.
IF THE FLOWS SUDDENLY GET SHUT OFF, IT IS ALMOST AUTOMATIC
GUARANTEED RECESSION. ESPECIALLY FOR GERMANY.
OR YOU HAVE ONE OF THE MORE HAWKISH COUNTRIES, THE BIG
QUESTION IS ABOUT GROWTH AND HOW YOU DEAL WITH THAT.
COMING OFF OF TODAY, IF THE GAS FLOWS CONTINUE AND INFLATION
DOES NOT COME DOWN MUCH FURTHER, IF THE GAS FLOWS
CONTINUE, THEY COULD DO ANOTHER 50 BASIS POINT.
BUT IF YOU HAVE ANY KIND OF CONCERN THAT THOSE MIGHT STOP
OR HAVE BEEN LOWERED EVEN FURTHER, I THINK THEY WOULD
WANT TO GET THOSE 50 BASIS POINTS, THEY WANT TO GET BACK
TO ZERO, AND THEN MAYBE THEY HAVE TO GO A LITTLE BIT SLOWER
GOING FORWARD, BECAUSE THAT FOURTH-QUARTER AND FIRST
QUARTER OF NEXT YEAR ARE STARTING TO LOOK REALLY, REALLY
20 -- REALLY TRICKY. JONATHON: OFF THE BACK OF THIS, WHAT IS
THE TRADE? I JUST WONDER HOW MAY PEOPLE
START TO TAKE A SECOND LOOK AT THAT IN THE COMING DAYS AND
WONDER WHAT THAT MEANS. WHAT IS THE TRADE-OFF ON THE
BACK OF THIS?
>> AT THE MOMENT, THE EURO IS HAVING THE MOST REACTION.
EQUITY MARKET HAS NOT BEEN AS EXCITED ABOUT THE 50 BASIS
POINT HIKE.
YOU SAW THIS MOVE THAT EVEN THE EURO IS SOMEWHAT UNDECIDED.
IT IS BETTER, AND THAT IT REDUCES INTEREST RATE
DIFFERENTIALS WITH THE DOLLAR AND EVERYONE WILL BE HAPPY WITH
A SLIGHTLY SOFTER DOLLAR AT SOME POINT.
BUT IT DOESN'T FEEL LIKE THERE IS SO MUCH CONFIDENCE THAT THIS
IS GOING TO BE AN AGGRESSIVE RATE HIKE CYCLE.
AS YOU SAID, THE TPI IS GETTING A LOT OF DIFFERENT OPTIONS TO
HAVE THAT SORT OF DOVISH TILT AND PROTECT THE EURO ZONE.
IF YOU NET THAT OUT, THAT IS HOW POSITIVE IT IS FOR THE EURO
OVER THE MEDIUM TERM. JONATHON: ERIK, I WANT TO GIVE THE FINAL
WORD. THAT CALL YOU MADE ABOUT A MONTH AGO, JUST A FINAL WORD IN
20 SECONDS.
>> THE MOST IMPORTANT THING HERE IS POSITIONING STILL IS
NOT STRETCHED IN A EURO DOWNSIDE.
WE THINK IT STILL FAVORS EURO LOWER FROM HERE, TARGETING $.95.
JONATHON: THERE WE GO. ERIK NELSON AND ESTY DWEK,
THANK YOU TO THE BOTH OF YOU. THE EURO-DOLLAR ABOUT TO GET
OFF. THEY ARE NOW LOOKING FOR 95.
IF YOU LOOK AT THE SPREAD IN GERMANY, ITALY OVER GERMANY, WE
ARE HIGHER BY ABOUT 21 BASIS POINTS ON A GERMAN TENURE --
10-YEAR. FROM NEW YORK CITY, THIS WAS
THE COUNTDOWN TO THE OPEN FOR OUR AUDIENCE WORLDWIDE.