* Euribor futures rising as speculators bet on dovish ECB
* Market exposed to selloff if ECB offers nothing new
By William James
LONDON, April 3 Expectations that the European
Central Bank could signal an imminent interest rate cut on
Thursday has left short-term interest rate futures primed for a
selloff if the bank's rhetoric falls short.
A run of data confirming the euro zone remains stuck in
recession, combined with unease after an unprecedented levy on
bank deposits in Cyprus has led some to bet on the central bank
signalling more monetary easing is in the pipeline.
That has helped push Euribor futures , which
generally rise as euro zone interest rate expectations fall,
around 5 ticks higher over the last two days and back to levels
last seen more than a fortnight ago.
"Markets seem to be entering the meeting with some
expectations of a more dovish flavour in the press conference in
light of the relatively weak data we have seen recently," said
Luca Cazzulani, deputy head of fixed income strategy at
On Tuesday, surveys showed manufacturing across most of
Europe's major economies endured another month of deep decline
in March, adding extra gloom to an already murky picture.
Nevertheless, none of the 73 economists polled by Reuters on
March 27 expected the ECB to cut rates, leaving scope
for a correction in short-term interest rate futures if markets
see little change in tone.
"We expect nothing will come in terms of rate changes or
unconventional monetary policy... It's slightly more likely that
investors who are expecting a cut or a significant step up in
dovishness, will again be disappointed," Cazzulani said.
Disappointment could see investors ditch Euribor futures
contracts, pushing prices down around 5 to 10 ticks and wiping
out recent rises, Cazzulani said.
Analysts compared the situation to the March policy meeting
when a perceived lack of dovishness from ECB President Mario
Draghi prompted those who had taken up long Euribor future
positions to sell the contract and drive prices down.
"(This month) it could be the same as last time if I'm right
that he will be very dovish but stop short of indicating any
near-term rate cut," said Anders Svendsen, chief analyst at
Nordea in Copenhagen.
"The market is all facing one way... More or less every one
agrees that he's unlikely to give anything other than a dovish