Pre-Open: Gold Catches a Bid at $1335

Draghi's Dilemma: Anything short of "Whatever it Takes" is Unacceptable Now

We like this comment by Bill Blain of mint.com and will let it stand alone for now:

During the depths of Euro Sovereign Crisis in 2010-2012, the ECB eased these doubts with LTROs and later QE effectively backstopping their debts! (Don’t tell the Germans its defacto debt mutualisation).

This is the real reason why Draghi won’t upset us today with details on how the ECB is going to pull the morphine of extraordinary monetary policy from a market addicted to it. He can’t afford the market to cold-turkey and panic. The risks to Italian bond spreads in particular,  the entire European corporate bond market, and the exposure of Europe’s multitude of SSA guaranteed borrowers wearing the Emperor’s New Clothes, is just too frightening to contemplate. 

The EURO is discounting easy money this morning, and why shouldn't it given the corner Draghi has painted himself into? We do note the occasional hawk like Draghi. But he reverses pretty quickly. The man  is the epitomy of central banker evolution: a clever academic who has drinks the kool-aid on neo-keynesianism straight from the powdered packet. Double down Draghi cannot afford to shrink money supply with a ninflux ofimmigrants that will overwhelm social systems, a trade partner to its east that supplies Germany's energy, and an increasingly isolationist US. We almost feel sorry for the guy. Isn't there  a 12 step program for Central bankers somewhere to get off the "schneid"?

Drama delayed

One impediment to the risk rally this month faded after U.S. President Donald Trump agreed a deal to add a three-month extension of the U.S. debt limit to a bill providing relief for victims of Hurricane Harvey, overruling Republicans who wanted a longer agreement, and siding with congressional Democrats. The Treasury billmarket is now pricing-in stress for the new debt ceiling deadline of Dec. 15, underscoring how fiscal brinkmanship has been postponed, rather than resolved. 

ECB meet

European Central Bank President Mario Draghi is set to give a much-anticipated policy update at 8:30 a.m. Eastern Time, with investors looking for clues on the future of its bond-buying program and any talk of the strengthening euro. The Governing Council has been presented with documents outlining multiple scenarios for adjusting its quantitative easing, according to officials familiar with the matter. Nonetheless, some investors have pared expectations for a tapering announcement despite the economic recovery, citing the euro’s advance, and a decision on how and when to scale back the program likely won't be made until the Oct. 26 meeting. A more hawkish-than-expected pronouncement, signaling the fading era of monetary support in the U.S. and Europe, will test risk appetite for investors around the world, from junk bonds to emerging markets. 

Fed succession

President Donald Trump has more power to chart the course of the U.S. central bank, after Federal Reserve Vice Chair Stanley Fischer, a godfather of global economic policy, announced his decision to step down mid-October. The U.S. dollar dipped after the news on speculation that the Fed succession plan may head in a more dovish direction. Meanwhile, Gary Cohn, top White House economic advisor and former Goldman Sachs Group veteran, is unlikely to be selected to replace Janet Yellen as chair, the Wall Street Journal reported, citing his perceived veiled criticism of the president’s response to a rally of white supremacists in Virginia.

Markets steady

The dollar hit a two-year low, while the euro rose to the strongest level in more than a week as stocks in the region struggled for direction ahead of the ECB meeting. Tensions over North Korea, Hurricane Irma and the clouded outlook for American monetary policy also threaten to outweigh positive sentiment from the U.S. debt extension in today’s trading session. The Topix index rose 0.4 percent at the close in Tokyo, and S&P futures were down 0.1 percent as of 5:55 a.m. ET.