This thread is dedicated to information regarding the ECB's potential QE programme and how to best trade it. At this point nobody knows whether we're going to see QE or not, but I think it's best to be prepared as this could be the trade of the year.
UPDATE 24APR14: Since the ECB is slow to react and prefers jawboning to action this thread will likely focus a great deal of attention on the rumors, speeches etc. regarding QE and the trading opportunities that it produces. See this post for more.
A short overview of what has taken place over the past several weeks:
Several central bankers, economists and market participants have been voicing concern over the threat of deflation in the eurozone. During the previous ECB press conference, Mario Draghi made some comments regarding quantitative easing in the eurozone (there were 8 mentions by Draghi, all in all). However, he was very reserved about the matter - he said the matter of QE had been discussed during the governing council meetings, but no decisions had been made. He emphasized the fact that inflation was temporarily subdued arising from a fall in the cost of imported energy. The long term target inflation rate for the ECB is no more but slightly lower than 2%, the recent figures put the inflation rate at 0.5%.
He did not mention any figures regarding QE, but according to FAZ the figure stands at one trillion euros. Draghi has made non-commital comments regarding policy action before, but his results have been mixed. After markets had had time to digest his comments and the most recents NFP figures the jumped on the euro bandwagon to 1.40 and rode it for the entire week. The week was filled with speculation about QE - on the one hand politicians applauding it while damning the expensive euro and on the other hand central bankers denying any concrete commitments regarding EQ. So obviously the markets did what they usually do - they shorted Draghi's words and rode the euro some 200 pips higher against the USD.
During the weekend Draghi visited the IMF in DC, where he once again tried to jaw-bone the euro lower.
Sunday evening/Monday morning saw the euro gap down around 25 pips. The rest of the four-day week was mainly spent in a range between .3800 and .3850 with no real conviction between either side as to where the price should go. To add confusion to the already confusing picture, we got this on Thursday:
This is a new and important development since opposition from Germany has been key in quieting any talk of a potential easing programme similar to what the Fed or BOJ have done. It seems the tide has turned and the Germans are starting to worry about the long term costs of austerity. This is purely speculation on my part but I think they might be fearful of a protracted fall in nominal incomes, which would clearly have a negative impact on debt servicing abilities of the weaker member states.
----------------------- end of intro --
I'm going to keep a keen eye on news out of Europe regarding QE and inflation data. Draghi mentioned the fall in inflation was temporary and attributable to a fall in energy import costs and a late Easter (since when do Christian holidays influence prices?). Draghi and a number of other central bankers and hoping to see inflation figures rise, but with continuing deleveraging in the private sector and a lackluster economy there is no way this is going to happen. Inflation is mostly a monetary phenomenon and you can't have inflation with credit creation hovering around 0%.
You are welcome to add news and commentary regarding this topic and how to perhaps best trade the programme once it's started. However, please remain civil. Trolls and users who post useless comments will be placed on the ignore list without warning.
UPDATE 24APR14: Since the ECB is slow to react and prefers jawboning to action this thread will likely focus a great deal of attention on the rumors, speeches etc. regarding QE and the trading opportunities that it produces. See this post for more.
A short overview of what has taken place over the past several weeks:
Several central bankers, economists and market participants have been voicing concern over the threat of deflation in the eurozone. During the previous ECB press conference, Mario Draghi made some comments regarding quantitative easing in the eurozone (there were 8 mentions by Draghi, all in all). However, he was very reserved about the matter - he said the matter of QE had been discussed during the governing council meetings, but no decisions had been made. He emphasized the fact that inflation was temporarily subdued arising from a fall in the cost of imported energy. The long term target inflation rate for the ECB is no more but slightly lower than 2%, the recent figures put the inflation rate at 0.5%.
He did not mention any figures regarding QE, but according to FAZ the figure stands at one trillion euros. Draghi has made non-commital comments regarding policy action before, but his results have been mixed. After markets had had time to digest his comments and the most recents NFP figures the jumped on the euro bandwagon to 1.40 and rode it for the entire week. The week was filled with speculation about QE - on the one hand politicians applauding it while damning the expensive euro and on the other hand central bankers denying any concrete commitments regarding EQ. So obviously the markets did what they usually do - they shorted Draghi's words and rode the euro some 200 pips higher against the USD.
During the weekend Draghi visited the IMF in DC, where he once again tried to jaw-bone the euro lower.
QuoteDisliked"A strengthening of the exchange rate requires further monetary stimulus. That is an important dimension for our price stability," Mr. Draghi said at a news conference during meetings of the International Monetary Fund.
Sunday evening/Monday morning saw the euro gap down around 25 pips. The rest of the four-day week was mainly spent in a range between .3800 and .3850 with no real conviction between either side as to where the price should go. To add confusion to the already confusing picture, we got this on Thursday:
QuoteDislikedThe Bundesbank chief, known for his hardline stances at the ECB and as head of the German central bank, is now ready to support such quantitative easing (QE) if he and his ECB colleagues deem it necessary.
QuoteDislikedWhat has changed is that "the situation has changed", according to one person familiar with the German's thinking, speaking on condition of anonymity.
----------------------- end of intro --
I'm going to keep a keen eye on news out of Europe regarding QE and inflation data. Draghi mentioned the fall in inflation was temporary and attributable to a fall in energy import costs and a late Easter (since when do Christian holidays influence prices?). Draghi and a number of other central bankers and hoping to see inflation figures rise, but with continuing deleveraging in the private sector and a lackluster economy there is no way this is going to happen. Inflation is mostly a monetary phenomenon and you can't have inflation with credit creation hovering around 0%.
You are welcome to add news and commentary regarding this topic and how to perhaps best trade the programme once it's started. However, please remain civil. Trolls and users who post useless comments will be placed on the ignore list without warning.
If you don't risk, you don't ever have to lose.