No Surprise Seen from BoE, ECB Awaited

European Central Bank expected to cut rates, Bank of England expected to hold pat on rates and asset purchase scheme, AUD unemployment ticks higher. Last nights premium Intermarket Insights lays out the possible options to the ECB as well as new trades in FX, gold, oil and silver.

The last European Central Bank meeting of 2011 is eagerly awaited by markets today, ahead of this weeks EU summit, not because the market expects another 25bps rate cut but because they are looking to see what new ECB President Mario Draghi will announce with respect to supporting the European banking system. Most of the measures were flagged up yesterday including two year loans for banks as well as relaxing collateral rules on loans and uncovered bonds.

If the markets are expecting the new ECB President to announce measures to cap bond yields on sovereign bonds or increase the amount of buying from the SMP program they could well be sorely disappointed.

Just before the ECB takes centre stage at 12:45 GMT, the Bank of England will go through the motions with respect to their last meeting of 2011 at Noon GMT. It is likely that despite yesterdays awful October manufacturing and industrial production data that policy will be left unchanged with rates at 0.5% and the asset purchase scheme total at 275bn. The Bank has come under pressure this week to announce an increase to its program of asset purchases, however it remains likely that they will resist until February.

BoE policymakers have already publicly stated that they dont want to pre-empt anything and should know by then how much inflationary pressure has dropped out of the consumer price index, as Januarys VAT rate rise will have dropped out.

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Aussie still holds firm despite the unexpected decline in Australias November by 6.3k against expectations of a 10K rise. The unemprate rose to 5.3% from 5.2%. The premium shorts in AUDNZD remain in progress.