ECB QE could theoretically surpass €2 trillion according to reported program details - page 10
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Spain's Restoy says ECB could extend QE if inflation not compatible with goal
Bank of Spain dep gov on the wiresPerfect timing to talk about extending QE
EURUSD is testing bids/support into 1.1425 again with EURGBP posting 0.7380 and EURJPY near previous session lows of 135.22
EURO Week Ahead: ECB's Malta Meeting Kicks Off CBank Stretch
Global investors will head into a critical fortnight stretch of monetary policy meetings this week highlighted by the European Central Bank's gathering in Malta that promises to ignite volatility in a market that appears overtly sensitive to central bank messaging.
ECB President Mario Draghi and his Governing Council colleagues will meet Thursday in Malta for one of the two policy meetings the Bank traditionally schedules outside of its Frankfurt headquarters. At present, there is a broad consensus that the Council will take no new action next week, instead preferring to wait until it returns home to the Main in December and, armed with fresh Staff Forecasts on growth and inflation, possesses a clearer understanding of the impact of the slowdown in emerging markets.
That said, investors will be on high alert for any signals that the Bank is ready to expand the pace, scope or duration of its E1.1 trillion asset purchase programme, which at the moment is scheduled to conclude at the end of September 2016, or, in the words of the Council, "beyond, if necessary, and, in any case, until we see a sustained adjustment in the path of inflation that is consistent with our aim of achieving inflation rates below, but close to, 2% over the medium term."
Last week, markets reacted furiously to comments from Governing Council member and Austrian Central Bank Governor Ewald Nowotny that some had interpreted as a call to add more tools to the Bank's current policy suite.
The ECB "is using the monetary policy instruments available - but it is quite obvious that in the current macroeconomic situation additional sets of instruments are necessary," Nowotny told a conference in Poland. "These include structural measures - and here we are at the heart of the conference topic: competitiveness. But let us not forget that economic growth depends not only on the supply side, but also on the demand side and the institutional settings of an economy."
The ambiguity in the phrasing led to a sharp reaction in foreign exchange markets, taking the value of the euro more than 50 pips lower against the US dollar during the session, only to see it fall further still to a one-week low of 1.1337. Benchmark German 10-year bund yields also touched a two-week low of 0.528%.
Later Friday, however, European Central Bank Executive Board member Benoit Coeure cautioned that policymakers are worried about unrealistic expectations placed on his institution.
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Comments from ECB's Nowotny - too early to talk of QE extension ECB Governing Council member Ewald Nowotny speaking in a newspaper interview
Bloomberg with the headlines from Nowotny's interview in Poland's Puls Biznesu newspaper
source
Comments from ECB's Nowotny - too early to talk of QE extension ECB Governing Council member Ewald Nowotny speaking in a newspaper interview
Bloomberg with the headlines from Nowotny's interview in Poland's Puls Biznesu newspaper
sourceThe hiding phase already have started?
Mixed Messages Coming Out of ECB Ahead of Meeting
European Central Bank (ECB) Governing Council member Ewald Nowotny said last week that inflation in the euro zone is a far cry from the ECB's 2% target and that an additional set of instruments are necessary to reverse the current trend, but on Monday Nowotny detailed a quite different approach.
Market participants have been speculating that the central bank will loosen its monetary policy further, possibly even as soon as this week's meeting (see our preview here), but Nowotny altered their expectations in a new interview for Poland's Puls Biznesu newspaper.
Both speeches from Nowotny have sent quite confusing messages to the market about policymakers future decisions, leading to uncertainty about new ECB steps and "new instruments". The euro suffered on Monday, with losses against all major currencies except the Swiss franc.
Last week's speech
Last week, Nowotny said that from his view "it's quite obvious that additional sets of instruments are necessary," adding that even core inflation shows no signs of improvement, the additional instruments in question should involve structural tools as well as measures to stimulate demand.
Those comments shook up the currency markets last week, with the euro initially declining as low as $1.1425 within minutes of Nowotny's comments, even though disappointing US data boosted the euro.
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Where To Target EUR/USD Now? - Danske The ECB surprised by being much more dovish than we expected yesterday and more or less pre-announcing easing in December. We now look for a deposit cut from the ECB of 10bp on top of an extension of the QE programme beyond September 2016.
The message from the ECB gave a boost to pretty much all assets: stocks, credit, peripheral bonds and sovereign bonds and should continue to do so in the short term. If we are right that China is bottoming now, this will underpin further performance of emerging markets asset as the growth fears around China are likely to ease a bit. US and euro stocks are supported by easier policies but, on the other hand, the falling macro momentum in the US and Europe will dampen stock performance in these regions. Overall, though, we are still moderately positive on global stocks in the medium term.
Bond markets should also continue to find support in more ECB easing and falling growth. Selling from central banks in Asia has also dampened as capital outflows out of China have come down; hence, the need for currency intervention is reduced.
EUR crosses fell sharply on Thursday following the ECB meeting, with EUR/USD leading the way, while the EUR also fell sharply versus commodity currencies such as CAD and BRL as risk appetite rallied.
As we now expect the ECB to cut the deposit rate by 10bp to -30bp at its meeting in December and keep the door open for further cuts and announce an extension of the QE purchases beyond September 2016, we have lowered our 1M and 3M EUR/USD forecasts to 1.10 and 1.08, respectively, as a further deposit rate cut is more EUR negative compared with our previous call of an extension of the QE programme.
However, we maintain our 6M and 12M EUR/USD forecasts at 1.12 and 1.20 as medium-term fundamentals support a higher EUR/USD.
They are inventing inflation data - the same as FED
French finmin Sapin: says ECB monpol is appropriate Comments from French Finance Minister Sapin on the Bloomberg Sapin speaking to reporters in Frankfurt
EUR barely changed on the comments.
Deposit Rate Cut a Possibility: ECB's Coeure The tools the European Central Bank (ECB) will choose to employ will depend on the risks the central bank sees to liquidity or interest rates, Executive Board member Benoit Coeure said in a speech in the capital of Mexico on Tuesday.
"If we see a risk that inflation would go back to 2%... in a much more sluggish way than would be previously expected... that may also mean an adjustment of the deposit facility rate," he told the audience at a conference of the Mexican Autonomous Technological Institute (ITAM). "It's an open discussion."
"We have different tools that we can use," he elaborated. "The reason why it deserves a discussion is we just want to be sure that we use the right instruments...If that is about interest rates, if that's about liquidity ... that's the discussion we're having," he added.
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