Blockbuster Bet on ECB Rate Cut Tracks Coronavirus Growth Fears

(Bloomberg) -- The rush to reprice the outlook for monetary policy has reached the euro area, as concerns about the global economic implications of the coronavirus reverberate around the world.

One trader bought almost 100,000 euribor futures expiring in March, seeking to benefit from a rate cut at the European Central Bank by the middle of the month. The Monday move came amid a shift in the money markets, which now price in a 50% chance of an ECB rate cut during 2020, having put the chances of such a move at zero last week.

“Given the uncertainty of the virus and how fast it escalates, it is too early to say that the market is getting ahead of itself,” said Jens Peter Sorensen, chief analyst at Danske Bank A/S.

Expectations ahead of last week’s ECB rate decision were for the central bank to stay on hold until 2021, but the spread of the SARS-like virus has undermined growth expectations not only in China but globally, also sending oil prices tumbling to a near three-month low. This has carried over in to euro-area inflation expectations with one five-year gauge falling to 1.26% from 1.33% at the start of the year.

Volumes in euribor futures for March 2020 expiry rose Monday to 250,000 contacts, a ten-month high, raising outstanding positions to the highest since May.

To contact the reporter on this story: James Hirai in London at jhirai3@bloomberg.net

To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Michael Hunter, Neil Chatterjee

©2020 Bloomberg L.P.