ECB QE could theoretically surpass €2 trillion according to reported program details - page 7

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ECB's Likanen says QE could last longer than Sept 2016 if needed

News out a short while ago and pulling the rug from under the euro a little

  • European financial stability risks are contained for now
  • ECB governing council are unanimous on steady policy

EURUSD 1.1318 after 1.1345 highs earlier but still holding above 1.1300 after a couple of tests so far

 

They will print money for longer than they are promising - the same as FED

Once they realized what can they do in plain sight, there will be no stopping any more

 
nbtrading:
They will print money for longer than they are promising - the same as FED Once they realized what can they do in plain sight, there will be no stopping any more

The way they are printing it - it wil be way more than €2 trillion. There will be happy 0.1% in Europe

 

ABN Amro Warns There Is A 40% Chance Mario Draghi Expands ECB QE As Soon As This Week

Last week, when we quantified what China's reserve unwind, aka Treasury liquidation, could mean in practical terms, we quoted Bank of America which put the total Reverse QE figure as we dubbed it (or Quantitative Tightening in DB's terms), at between $1 trillion and $1.1 trillion.

At the same time, Deutsche Bank added fuel to the fire, when it noted that "the potential for more China outflows is huge: set against 3.6trio of reserves (recorded as an “asset” in the international investment position data), China has around 2trillion of “non-sticky” liabilities including speculative carry trades, debt and equity inflows, deposits by and loans from foreigners that could be a source of outflows (chart 2). The bottom line is that markets may fear that QT has much more to go."

Deutsche was kind enough to provide a silver lining to this otherwise dreary forecast: "What could turn sentiment more positive? The first is other central banks coming in to fill the gap that the PBoC is leaving. China’s QT would need to be replaced by higher QE elsewhere, with the ECB and BoJ being the most notable candidates."

And there it is: the only thing that can offset the synthetic inverse QE that China and/or the rest of the EMs embarked on as Zero Hedge first warned last November, is more quite tangible QE conducted elsewhere, ideally at the ECB (which is currently 6 months into its first QE episode), or Japan (although the ceiling to debt monetization there may have been already hit with the BOJ already monetizing more than 100% of all gross issuance) but not the Fed, whose rate hike intentions are what started this entire global reserve liquidation fiasco in the first place.

Fast forward to today, when just two days before the September 3 ECB governing council meeting and press conference, ABN Amro released the genie from the bottle, when its head macro strategist Nick Kounis said the he now sees "a much bigger risk that the ECB will step up QE as soon as this week’s meeting. We see this probability at around 40%, so it is an increasingly close call. The renewed drop in oil prices, which will keep headline inflation lower for longer is a key factor behind the rising risk of action in our view. This has also led to a sharp fall in inflation expectations, as measured by the 5y5y inflation swap, that ECB President Draghi has put a lot of weight on in the past (see chart)."

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He will : they need the extra fiat money to calm down the natives

 

Draghi On Deck

One of the many challenges for participants today in navigating the macro-straits, is at times dismissing the conventional market wisdom for more counter-intuitive perspectives - and always keeping an open mind to where and when the respective monetary handlers may choose to intervene, regardless of one's bias or market posture. We've noted in the past that since the markets arrival at ZIRP and QE in Q4 of 2008, many long-standing bedrock orthodoxies have been turned on their head, from "inflation is always and everywhere a monetary phenomenon..." - to the other bookend policy expectation that QE lowers interest rates.

Back in 2009 and 2010, some of the most prominent minds in and around finance argued that such large scale asset purchases by the Fed risked "currency debasement and inflation" and would not achieve the Fed's objective of promoting employment. So confident with their assumptions, some of them eventually scribed a manifesto as a strongly worded open letter to then Fed chairman Bernanke in November 2010.

Notwithstanding the fact that inflation wasn't exactly the enemy of the state during and after the crisis... LSAP's did not usher in an era of hyperinflation, but did at the outset of each program, raise inflation expectations and bolster risk appetites, that over time helped smooth the transition from the financial crisis, which ultimately became reflected in the long trend lower in the unemployment rate.

With world markets coming under significant pressure this August and with the September ECB meeting on the docket today, the probability that President Draghi implies or takes further action in Europe has increased. Moreover, from a comparative perspective of the currency and bond markets from the last deflationary scare, there are some similarities to where the Fed surprised the markets in March 2009 with an expanded salvo of stimulus, to the tune of over twice the initial program introduced at the end of November 2008.

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ECB Preview: Talking Euro Down to Combat Inflation Slide

With the summer months now at an end, the Governing Council of the European Central Bank (ECB) is set to convene in Frankfurt on Thursday, to reveal fresh macroeconomic forecasts for the euro zone. While the growth outlook is widely seen as stable, the inflation forecasts are built on shaky foundations, given the latest commodity market development and China-related turmoil, providing scope for further monetary stimulus expansion.

It was the ECB's chief economist Peter Praet who hinted last week at a lower inflation forecast, saying the risks to inflation outlook had increased. "Developments in the world economy and commodity markets have increased the downside risk in achieving the sustainable inflation path towards 2 percent; the risk has increased," Praet said at the Annual Congress of the European Economic Association in Mannheim on August 26.

Praet reiterated the point often mentioned by ECB President Mario Draghi, saying that "there should be no ambiguity on the willingness and ability of the governing council to act if needed." That means that the ECB policymakers intend to have their doors open for further quantitative easing expansion should "the outlook for inflation materially change."

With the launch of the quantitative easing program this January, the exchange rate of the common European currency, the euro, fell rapidly against its major counterparts, This has been the most imminent result of the bond buying program of the ECB so far, easing the life of exporters and also countering disinflationary pressures by making imports costlier.

With the current euro trade weighted index development showing all of this year's euro losses having already been erased, the strategy of talking the euro down might be helpful just to have things look brighter, at least as bright as they were with the euro trading effectively some 7% lower.

Looking at the current market perception for the inflation outlook, the situation has changed since the last ECB meeting in mid-July. The 5 year/5 year swap rate, the ECB's preferred gauge of inflation outlook, is currently trading at 1.67%, some 15 basis points lower compared to the July meeting at which Draghi said that "market-based inflation expectations have, on balance, stabilized or recovered further since our meeting in early June."

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Full text of ECB President Mario Draghi's opening statement

Mario Draghi, President of the ECB,

Vítor Constâncio, Vice-President of the ECB,

Frankfurt am Main, 3 September 2015Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today's meeting of the Governing Council. As usual, let me start with the decisions taken.

Based on our regular economic and monetary analysis, and in line with our forward guidance, the Governing Council decided to keep the key ECB interest rates unchanged.

Our asset purchase programme continues to proceed smoothly. Regarding non-standard monetary policy measures, following the announced review of the public sector purchase programme's issue share limit after the first six months of purchases, the Governing Council decided to increase the issue share limit from the initial limit of 25% to 33%, subject to a case-by-case verification that this would not create a situation whereby the Eurosystem would have blocking minority power, in which case the issue share limit would remain at 25%.

Underlying our monetary policy assessment was a review of recent data, new staff macroeconomic projections and an interim evaluation of recent market fluctuations. The information available indicates a continued though somewhat weaker economic recovery and a slower increase in inflation rates compared with earlier expectations. More recently, renewed downside risks have emerged to the outlook for growth and inflation. However, owing to sharp fluctuations in financial and commodity markets, the Governing Council judged it premature to conclude on whether these developments could have a lasting impact on the outlook for prices and on the achievement of a sustainable path of inflation towards our medium-term aim, or whether they should be considered to be mainly transitory.

Continued here

 

Draghi coos like a dove ... Yellen asks "Why’d you have to do that this month, Mario?

The ECB's decisions and Draghi's emphasis their dovish resolve will make it a little bit harder on the Fed to deliver a lift rate hike this month.That's the take from many today. ANZ have put it best in their morning client note:

  • Fed Chair Janet Yellen was probably thinking to herself: why'd you have to do that this month, Mario?

    • ANZ go on:

  • Fed's USD TWI continues to grind higher ... slowly tightening the thumbscrews on US competitiveness
  • ECB downgraded its inflation forecasts
  • GDP growth forecasts were also revised lower
  • Draghi stated that the Governing Council had not discussed a change to the size of the programme at this meeting. ... he was clear that if downside risks to growth and inflation were to intensify, then such an option
  • ECB also raised the limits of bonds that national central banks can buy to 33% from 25%... the decision is "clearly a sign of the readiness of the ECB to adjust the parameters of the programme"

Much more on Draghi and the ECB is here

source

 

Bridgewater’s Dalio says ECB needs to accelerate QE to keep euro low

Comments from Ray Dalio, founder of Bridgewater Associates, the world's largest hedge fund.He was interviewed in German newspaper Handelsblatt, Bloomberg with the headlines

  • The European Central Bank needs to accelerate QE in 6 or at the latest in 12 months to keep the euro low
  • Says it's the only way to increase growth, competitiveness of euro-zone
  • Says that Greece is to remain in crisis for long time

    • Also:

  • China needs to restructure its economy and debt
  • Says the Chinese economy will slow as will world growth
  • Says we are now at the end of longer-term debt cycle weighing on growth
  • He is not worried about a market crash as liquidity from central banks drives securities prices higher
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