QE

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How would broader ECB QE impact the UK?

LONDON | UBS analysts | UBS expects the ECB to widen its asset purchase programme to include corporate, parastatal and sovereign bonds on 5 March 2015. Our base case is for €1 trillion of sovereign bond purchases to be undertaken over a two-year time horizon. In this note, we examine how a broadening of the ECB’s QE programme is likely to impact the UK economy and sterling-denominated asset classes.


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December TLTRO: A window on the ECB’s future actions

By Giuseppe Maraffino (Barclays) | On Thursday, December 11, the ECB will carry out its second TLTRO. The allotment results will be out at about 10:15 London time. The size of the new liquidity injected will be clear on the settlement of the operation, on Wednesday, 17 December, which is also the settlement day of next week’s MRO and of the weekly 3y LTRO repayment. However, the announcement on Friday, December 12, of next week’s 3y LTRO repayment will provide some insights on the new liquidity injected.



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“No need for unanimity” for QE

MADRID | The Corner | The ECB avoided taking any new measures to fight stagnation in the eurozone, although its growth forecast is significantly lower than 3 months ago. As Mario Draghi announced on Thursday, the Frankfurt-based institution intends (he said, using that word instead of ‘expects’) to expand its balance sheet by $1Tr, yet it won’t act before 2015, as many were expecting. A sovereign QE, despite the Bundesbank’s opposition, is a closer possibility, but the Governing Council will wait until next year to assess the impact of the existing policy measures and of falling oil prices.


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What if before the sovereign QE, the ECB launched a corporate bond purchase plan?

MADRID | The Corner | Even though the sovereign QE is present in the markets’ dynamics, it is likely that the ECB will first bet on a program of corporate debt purchase and then wait to see what happens. Experts at Morgan Stanley say that the likelihood of this plan is 30% and that it would have an impact on the households’ wealth as well as providing greater financial stability. However, the program would also have problems when it finishes, because equities don’t expire and the ECB wouldn’t be able to have those shares ad infinitum.


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ECB preview: Not yet

Guest Post by  Thomas Harjes and Fabio Fois (Barclays) | Despite the softer November inflation print and some likely downward revisions in the ECB’s inflation and growth outlook next week, we do not expect the ECB to announce further policy easing when the Governing Council meets on Thursday, 4 December. We believe the ECB is going to wait at least another month. 


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German macroeconomics will determine ECB bond purchases

MADRID | The Corner | Markets are already discounting the ECB’s QE of sovereign debt. That is why the risk premiums of the European periphery are now at historical low levels –take the Spanish one, for instance, which has dropped to 108 points. The yield of the 10-year bond has fallen to 1.85%. In this context, a sovereign bond purchase program still makes sense. “The latest inflation data of the Eurozone, which are at 0.3%, are a clear indicator of that,” Felipe López-Gálvez, expert at Self Bank, explains. However, the program would not acquire a full meaning until the German economy showed signs of weakness. “If Germany holds on,” then the ECB will not come to that extreme.


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Markets take ECB’s QE for granted

MADRID | The Corner | Inflation in the eurozone is not picking up. Expectations aren’t either. And the ECB’s balance sheet expansion is almost inexistent. PMI indicators (which the central bank is closely watching) are trending downwards. In this context, Barclays analysts comment, it is not strange that markets are expecting more QE from the Frankfurt. But when? Probably not this week.

 


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QE fails to work in Europe

MADRID | By JP Marín Arrese The inability to implement a common economic stance aimed at delivering growth and jobs in Europe is putting the onus on monetary policy. The ECB stands as the only hope for redressing a dismal state of affairs. Yet, such high expectations could prove ill-founded. While Draghi saved the Euro’s plight back in mid-2012, he now seems utterly helpless to prevent deflationary bouts looming on the EZ horizon. His quantitative easing (QE) plan, far from achieving its goal, has lost steam. Many observers have put the blame on the ECB’s reluctance to enlarge the asset basket it is currently buying, demanding fully fledged QE, which involves junior debt and sovereigns. Yet, the flaw might lie in Europe’s failure to fully profit from monetary easing.


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ECB endorses balance sheet target

MADRID | The Corner |  As expected, the ECB’s Governing Council left the policy rates and the ABSPP, CBPP3 and TLTRO programmes unchanged and expressed its endorsement for increasing the central bank’s balance sheet to its size at March 2012, that is, around €3Tr. Draghi explicitly pointed out that they would evaluate further measures in case that the current purchase programmes are not enough to expand the balance sheet or if the EZ inflation outlook worsens. With policy rates at the zero bound, pressure is mounting on the central bank to act.