J.P. Marín Arrese | Jay Powell was crystal clear in Jackson Hole about his willingness to scale down QE starting by the year close. As the US economy is recovering at full steam and prices skyrocket to a 13-year record, the idea that monetary policy will soon switch from the current over-loose stance to a more neutral one is hardly surprising. His message even sounded dovish as he cautioned against rushing into fighting inflation. He considered its current upsurge temporary, however, dismissing this upsurge might poise an…
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Monex Europe | The dollar has been regaining ground since yesterday amid concerns that President-elect Joe Biden’s $1.9tn stimulus plan may fail to win broad-based support, as Republican opposition is possible over the big-ticket spending. These concerns are reinforced by the voting procedure in the Senate: fiscal stimulus requires 3/5ths of the votes (60 votes) in order to pass. Among the elements in the proposal are direct payments of $1,400, on top of the $600 approved in December, $350bn for state and local governments, $160bn in vaccination funding, $130bn to help schools reopen, and additional employment benefits.
Azad Zangana (Schroders) | As promised at the previous Governing Council meeting, the European Central Bank (ECB) has today announced additional stimulus to aid the economic recovery. This follows the new restrictions introduced last month to stop the spread of the coronavirus. The pandemic emergency purchase programme (PEPP) will be expanded by €500 billion to a total of €1.85 trillion. Purchases will be extended to at least the end of March 2022.
The Bank of England (BoE) left policy on hold at its latest meeting. Bank Rate remained at 0.1% and the Asset Purchase Facility (APF) was left at £745bn. Both decisions were made unanimously. The BoE explained that the APF had risen to £684bn to date, buoyed by £230bn in gilt purchases and £9.3bn (of £10bn) corporate debt purchases. The current QE programme is expected to expire around the turn of the year and purchases have been lower than in Q2 given the improvement in liquidity conditions.
Peder Beck-Friis, (Portfolio Manager, Global Macro PIMCO) | BoE will announce its next policy decision on Thursday (noon, UK time). We expect them to leave the policy rate unchanged at 0.1% and to add +100bn of QE purchases. This is in line with market pricing.
Unigestión | Whether it is called QE or not, buying bills (swapping reserves for short-term bonds), injecting liquidity into the market place and growing the balance sheet affects risky assets. Market conditioning (the Pavlovian effect) since the GFC is that stock markets cannot go down when the Fed is growing the balance sheet. Additionally, the Fed’s extremely aggressive response to the repo blowout in September is another signal to markets that it has a very low tolerance for market fluctuations.
ECB records were published which caused discussions about further rate cuts and a new round of QE. Morgan Stanley analysts have been most vocal over QE anticipating that with the current inflation data the ECB is likely to use all the tools it has in reach.
Low growth below the 2% threshold coupled with below-target inflation has led our macros to believe that the ECB is taking extra stimulus for granted. This would mean the return of the centra banks’ asset repurchase program, experts at Morgan Stanley point out..
The ECB will stop injecting liquidity into the system next December. This leaves Eurozone banks in a slightly odd situation: returning to “normality” after years of atypical measures. The withdrawal of QE will have different impacts on different countries, depending on the characteristics of the models of their banking business.
The ECB’s chairman endorsed the optimistic staff forecast enough to justify the end of QE for December 2018 and then spent the rest of the press conference insisting on the downside risks. This was the only way that BoAML’ s analysts find to deliver what they think about Mario Draghi’s main challenge: making sure that there would not be any continuum in the market perceptions between the end of the net purchases and a brisk pace of normalisation on rates.