ECB QE could theoretically surpass €2 trillion according to reported program details - page 6
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Reality check for EUR/USD – Draghi drags it down
Monetary policy divergence is still the name of the game: while doubts creep in about the ability of the Fed to raise rates this year, in the euro-zone it’s easing as usual.
EUR/USD has fallen back to the lower range under 1.1375 but still holds the post US retail sales rally. What’s next?
In a speech today, Mario Draghi reiterated that the ECB will continue implementing the QE program in full. The bond buying program is set to last until sustained adjustment in inflation. Recent figures have been not-as-bad as beforehand, but still point to a dearth of inflation.
The president of the Frankfurt based institution also did some tapping on his own back by saying that unconventional measures have been potent so far, while admitting it could have side effects.
The US dollar suffered badly from the poor retail sales report. Tis sent EUR/USD to initially trade in a narrow range between 1.1340 and 1.1375. It then shot higher to as high as 1.1444, but it is now back down.
The greenback also got a boost from better than expected jobless claims numbers.
It’s good to see that markets are data driven and trade in clear ranges.
Tomorrow we have an important data point in the US: the University of Michigan’s Consumer Confidence number
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ECB Minutes: "Wide agreement" that QE is progressing smoothly
Minutes just out. More to follow
Euro dipping on that last comment it seems to me as I can't see anything else too obvious on first read through
Full text of the 14-15 May meeting summary here
EURUSD 1.1137 from 1.1160 EURGBP clinging onto the 0.7100 support/bids
FED was doing QE for more than 5 years (officially)
The same will be with ECB
FED was doing QE for more than 5 years (officially) The same will be with ECB
They are printing money like crazy, and still advocating austerity. Where the printed money goes? The same place as in the US
Goldman Sachs: ECB are going to stick to the program, but will verbally intervene
Comments from Kevin Daly, senior European economist at Goldman Sachs Group in London on the ECB bond-buying programme:
Daly commenting in the wake of the speech from the European Central Bank's Benoît Cœuré last week that, in a way that ... cough ... probably could have been handled a bit more professionally ... helped boost Bunds last week.
They are sacrificing Euro in order to bust euro stocks -
ECB Slows Bond Purchases After Indicating Pace Would Accelerate
The European Central Bank slowed purchases of public-sector bonds, even after saying it would accelerate buying before liquidity dries up during Europe’s summer vacation period.
Holdings of government and agency debt under its quantitative-easing program climbed by 11.8 billion euros ($13 billion) to 134.2 billion euros in the week ended May 22, data on the ECB website showed on Monday. That’s the smallest increase in three weeks.
ECB Executive Board member Benoit Coeure said on May 18 that the central bank would increase the pace of its bond buying this month and next to counter lower liquidity in July and August. The comments helped German 10-year bunds, the region’s benchmark sovereign securities, bring to an end their longest run of weekly declines since June 2012.
Covered-bond purchases rose by 2 billion euros to 82.8 billion euros, the smallest increase since the start of April. Asset-backed securities climbed by 99 million euros to 6.2 billion euros.
QE started in March with the target of buying a total of 60 billion euros a month of public-sector debt, covered bonds and ABS, though the ECB has said the program can be flexible if needed. Policy makers intend to run the program until September 2016, or until they judge the euro-area inflation rate to be back on track to their goal of just under 2 percent.
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QE Should Be Carried Out Through the End: ECB's Visco
The European Central Bank must continue its quantitative easing program to boost inflation in the 19-nation bloc even though the threat of deflation has recently weakened, according to the central bank's governing council member Ignazio Visco.
"Fears of deflation have abated but the positive effects of the program observed so far should not weaken our determination to take it forward," Visco said in a speech to the annual shareholder assembly of the Bank of Italy.
Visco said it's of paramount importance that inflation permanently reaches the ECB's target level of close to 2% while dismissing concerns that the ultra-low interest rates environment resulting from the ECB's actions could encourage reckless risk taking on financial markets.
"There are no signs to date that low interest rates are provoking generalized imbalances," he assured.
He also touched on the issue of the Greek debt crisis and said that its impact on sovereign risk premiums in the rest of the euro area has so far been limited. However, further destabilization may become a reality given that the ongoing discussions are shrouded in uncertainty, "fuelling grave tensions that could prove destabilizing."
Visco, who is also governor of the Italian central bank, has confirmed the recent forecasts according to which the Italian economy is set to recover in 2015 and the recovery should strengthen in 2016. However, he warned that economic performance was still weaker than the average for the euro zone as a whole.
He noted that reforms carried out by the government had been recognized by Italy's partners and on financial markets but added that they must continue and their implementation should be accelerated.
The ECB Did Just As It Leaked To Its Hedge Fund Friends: European QE Activity Jumped By Over 8% In May
Until May, as part of its Public Sector Purchase Programme (aka QE), the ECB bought just over €47 billion in Eurozone (excluding Greece of course) government bonds. Then, after Gross said, and Gundlach chimed in, that the German Bund is "the short of a lifetime" the Bund cratered in one of the most sharp and dramatic moves seen in recent years, plunging from under 0.1% to nearly 0.8%, before finally stabilizing around 0.5% in recent days.
All of this took place as the ECB's Benoit Couere leaked, with a 10 hour head start, ECB strategy to a select group of hedge funds, when in a speech on May 18, he said that "the ECB is aware of seasonal patterns in the bond market and that there is generally less liquidity on the market from mid-July to August. "The Eurosystem is taking this into account in the implementation of its expanded asset purchase program by moderately front loading its purchase activity in May and June,” he said. The leak has since been blamed on an "internal procedural error" and has even gotten the European Obudsman involved in this latest gross leak by the ECB, one which moved the EURUSD substantially.
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Draghi says investors better get used to ‘higher volatility’
Expect Mario Draghi to get some questions seeking more clarity about ECB Executive Board member Benoit Coeure’s announcement last month that the central bank would “front load” bond purchases in May and June in anticipation of slow market conditions in July and August. The remarks caused a lot of turmoil even though ECB officials had previously indicated such a wrinkle was possible. The remarks were nonetheless seen as a signal that the ECB has no intention of ending its bond-buying plan early despite improving economic data and signs of inflation.
The remarks also caused controversy due to the fact that they were delivered to a closed-door gathering of bigwigs, including hedge-fund managers, and then released to the public the next day—a move the ECB said was in error.
The euro got a boost Tuesday from data that showed core inflation in May accelerated to a stronger-than-expected 0.9% annual rate from 0.6% a month earlier—its highest level since August. Moreover, the news sent German bonds skidding, pushing up yields, as fears of deflation continue to fade.
Ben May, economist at Oxford Economics, has some doubts about the durability of the rise in the May prices but still thinks inflation could end up being the next “upside surprise” in the eurozone.
If medium- and long-term interest-rate expectations have more room to rise, government bond yields should head higher too, all things being equal, May said, in a note. In the near term, though, the bond market’s direction will depend a lot on how investors think the ECB will respond to rising yields.
Draghi’s response to questions about the ECB’s plans to “front load” planned bond purchases ahead of a slow period in July and August could have a “crucial bearing” on bond-market moves in the near term, he said. While Oxford Economics thinks yields will likely hover near current levels for much of this year, there are “major downside risks,” May said.
Weak growth outside the eurozone, which would impede export growth, as well as further ECB frontloading, could both put renewed pressure on bond yields. Meanwhile, a China slowdown or a Greek exit from the eurozone would have an even bigger impact, likely pushing the 10-year bund yield back to around zero, May said.
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