It has been a while since we had an ECB-linked Reuters headline trial ballon, with the last one coming over a month ago and suggesting that the ECB may buy equities at some point in the future. So, maybe to make up for lost time, moments ago Reuters blasted headlines which had a quick but transitory effect on stocks and the Euro with the following:
- ECB ALMOST CERTAIN TO KEEP BUYING BONDS BEYOND MARCH, ADJUST PROGRAMME RULES- CENTRAL BANK SOURCES
- CHANGES TO CAPITAL KEY, ISSUE LIMIT AND YIELD FLOOR ARE UNDER CONSIDERATION – CENTRAL BANK SOURCES
More from the full piece:
The European Central Bank is nearly certain to continue buying bonds beyond its March target and to relax its constraints on the purchases to ensure it finds enough paper to buy, central bank sources have told Reuters. The moves will come in an attempt to bolster what is being heralded as the start of an economic recovery in the euro zone.
ECB policymakers are due to decide in December on the future shape and duration of their 80 billion euros (£71.58 billion) monthly quantitative easing (QE) scheme, based on new growth and inflation forecasts. They did not discuss specific options at last week’s meeting and no policy proposal has been formulated. But sources familiar with the matter said it was all but sure that money printing would continue in some form beyond March, currently the ECB’s earliest end-date. This would be consistent with ECB President Mario Draghi’s guidance last week that the Bank would keep a “very substantial degree of monetary accommodation” and his dismissal of an abrupt end to the bond scheme.
The extension means some of the ECB’s self-imposed constraints on what it can buy will have to be eased as eligible German bonds become harder to find, the sources said. One possible change being considered would see the ECB buying fewer bonds from countries where scarcity is starting to emerge, such as Germany, whose government debt up to five years is often ineligible because it yields less than the deposit rate. This would be a small departure from a rule dictating that sovereign bonds be bought in proportion to the amount of capital each country has paid into the ECB, which depends on the size of its economy.
Of course, once the algos got over the kneejerk reaction which benefited US and European equities, there was nothing really new in the headline, as both of those components were widely expected to be under consideration by the ECB. In fact, after the initial spike lower in the euro and highes in stocks, risk appears to have continued its descent, suggesting the ECB will need to come up with something more dramatic to jawbone markets into the desired direction.
Meanwhile, Italian yields are increasingly concerned that recent speculation about ECB tapering, or “yield targeting” is the real deal and continue to drift higher.
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