Month: October 2014

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.BAILOUT THRILLER

(Michael Jackson’s Thriller)

WilliamBanzai7

 

It’s Midnight this late October night and

Banksta Zombies Lurking in the Dark.

Under The Moonlight,

You See A Sight That Almost Stops Your Heart.

You Try To Scream,

But Terror Takes The Sound Before You Make It.

Markets Start To Freeze,

As Horror Looks You Right Between Your Day Trader Eyes,

Your Paralyzed

You Hear The Door Slam,

And Realize There’s Nowhere Left To Run.

You Feel The Cold Take Hold,

And Wonder If You’ll Ever See another Market Run

You Close Your Eyes,

And Hope That This Is Just Imagination,

But All The While,

You Hear The Grim Market Reaper

Creepin’ Up Behind

You’re Out Of Trading Time

They’re Out to Get You,

There’s Alghoul Trading Demons Closing In On Every Side.

They Will Possess You,

Unless You Change The Number On Your Skype.

Now Is the Time for You and Your Trading Bros to huddle Close Together

All Thru The Night,

It’ll Save You From The Terror On The Bloomberg Screen,

It’ll Make You See:

 

(narrated by Vincent Price)

Darkness Falls Across O-Bola Land,

The Asian Trading Day Is Close At Hand.

Bottom Feeders Crawl In Search Of Blood…

To Fraudclose on Your Neighborhood

And Whosoever Shall Be Found Without

The Soul For Economic Bust

Must Stand And Face The Hounds Of Subprime Hell,

And Rot Inside Lehman’s Bankrupt Shell.

The Foulest Stench Is In The Air

The Funk Of One Gazillion Bailout Bucks

And trading Ghouls From Every Banksta Trading Room

Are Closing In To Seal Your Doom

And Though You Fight To Stay Alive

Your P&L Starts To Shiver

For No Banksta Gangsta Can Resist

The Evil Of The Bailout Thriller

 

‘Cause this Is Thriller,

TARP Bailout Thriller Night

and No-ones Gonna Save You from the Beast about to Strike.

You Know its Thriller,

TARP Bailout Thriller Night

You’re fighting for Your Monetary Life inside a Killer, Thriller.

Thriller, TARP Bailout Night

‘Cause

It can thrill you More Than Any Keynesian Ghoul Could ever try.

(Thriller, Bailout Night)

So Let Me Hold You Tight And Share A Killer, Chiller, Mega Fiscal Massacre
Thriller Here Tonight.

‘Cause this Is Thriller, TARP Bailout Thriller night

It Will Thrill You More Than Any Kenynesian Ghoul Could ever dare

try

Any Ghoul could ever Dare…

via Zero Hedge http://ift.tt/1s06lXP williambanzai7

It was about several months ago when Goldman, which initially was an enthusiastic supporter of BOJ’s QE, turned sour on both Abenomics and the J-Curve (perhaps after relentless mocking on these pages), changed its tune, saying an unhappy ending for Abenomics is almost certainly in the cards.

Not surprisingly then, in its post-mortem of the BOJ’s overnight action, already being affectionately called Banzainomics, is hardly glowing, and is summarized as follows: “We maintain our view that unless the yen continues to depreciate significantly, as a result of the latest QQE action, the BOJ is unlikely to meet its scenario for inflation to stably reach 2% during FY2015. From a political perspective, with nationwide local elections looming in April 2015, we also highlight the potential for harsh criticism of further cost-push inflation driven by the weaker yen among nonmanufacturers, SMEs, and households. Irrespective of the latest easing moves, we believe the BOJ is treading a very narrow path.“

Full note from Goldman’s Naohiko Baba:

Further QQE and move to a fully open-ended easing program

The Bank of Japan announced further quantitative and qualitative easing (QQE) action at its Monetary Policy Meeting on October 31 (Exhibit 1). It also officially removed the 2-year timing target for achieving 2% price stability, making the timeframe completely open ended (by a vote of 5 to 4). While the latter announcement was within the scope of our expectations, the first came as a surprise (we had assumed further easing action would be announced in January 2015). The additional QQE measures are as follows:

1. Pace of monetary base increase will be stepped up by ¥10 tn-¥20 tn per year, to around ¥80 tn per year.

2. Long-term JGB purchases will be stepped up so that the outstanding JGB portfolio will increase by around ¥80 tn annually, an acceleration of around ¥30 tn. The average remaining maturity of the BOJ’s JGB purchases will be extended to 7-10 years (extension of a maximum 3 years). In addition, the outstanding ETF portfolio will be increased at an annual pace of ¥3 tn, tripled from the current pace of ¥1 tn, and annual REIT purchases will triple to ¥90 bn, from ¥30 bn. The JPX-Nikkei 400 index is newly added to eligible ETF purchases by the BOJ.

BOJ sharply lowers Outlook Report FY2014 growth forecast

In the biannual Outlook Report published today, the BOJ sharply lowered its FY2014 real GDP growth forecast to +0.5% yoy, from +1.0%, in line with our expectation. It only made minor revisions to its price outlook, however, adjusting its CPI forecast to +1.2%, from +1.3%, for FY2014 and to +1.7%, from +1.9%, for FY2015. It therefore maintained its scenario that inflation is likely to reach around 2% sometime in FY2015 (Exhibit 2). We believe the bank has factored the impact of the additional QQE mentioned above into its outlook.

Further easing to stop inflation expectations receding

However, in the risk assessment section of the Outlook Report, the BOJ noted that risks to its price outlook are to the downside. It explained that sustained weakness in post-tax-hike demand and downward price pressure from the decline in crude oil prices could pose a risk of delayed improvement in inflation expectations that could create downside risks to prices per se. It said it had taken additional QQE measures to prevent the risk of a delayed turnaround in deflationary mindset from materializing. Although denied by Governor Kuroda at the press conference, we think the bank may have sought to give its support to a second consumption tax hike (slated for October 2015, decision to be taken early December) at a time when increasing number of voters as well as politicians are expecting the timing of the next tax hike to be pushed back. Amid a slew of weak macro data following the April tax hike, we think the Japanese government has a strong desire to lift share prices as far as possible and thereby improve corporate and household sentiment to make it easier for Prime Minister Abe to commit to a second tax increase. In our view, it is no coincidence that GPIF portfolio changes (lowering of domestic bond allocation, increase in equity allocation) and the BOJ’s adding easing measures were announced the same day.

Attaining 2% price stability target still looks very challenging

Prices have trended broadly in line with our outlook over the past six months or so. The September national core CPI, announced today, slowed to +1.0% yoy and has now reached the bottom end of the previous assumption of the BOJ’s 1.0%-1.5% range. With the October Tokyo core CPI also slowing further, crude prices trending downward and the post-tax-hike economy weakening more than anticipated, we think the CPI could dip below +1.0% near term. We maintain our view that unless the yen continues to depreciate significantly, as a result of the latest QQE action, the BOJ is unlikely to meet its scenario for inflation to stably reach 2% during FY2015. From a political perspective, with nationwide local elections looming in April 2015, we also highlight the potential for harsh criticism of further cost-push inflation driven by the weaker yen among nonmanufacturers, SMEs, and households. Irrespective of the latest easing moves, we believe the BOJ is treading a very narrow path.

 

Exhibit 1: BOJ expands monetary easing
BOJ Quantitative and Qualitative Easing

 

Exhibit 2: BOJ sharply lowers Outlook Report FY2014 growth forecast
BOJ Outlook Report

via Zero Hedge http://ift.tt/1s06lXI Tyler Durden

• Futures rally after BOJ ramps up stimulus (Reuters), Japan’s central bank shocks markets with more easing as inflation slows (Reuters)
• Kuroda Jolts Markets With Assault on Deflation Mindset (BBG)
• Japan Mega-Pension Shifts to Stocks (WSJ)
• Russia Raises Interest Rates (WSJ)
• Not anymore, the BOJ is here: Fed Exit Could Spark Slump in All Markets, ATP CEO Says (BBG)
• Oil-Price Drop Has Saudi Officials Divided (WSJ)
• Wal-Mart Weighs Matching Online Prices from Amazon (WSJ)
• Euro-Area Inflation Picks Up From Five-Year Low on Stimulus (BBG)
• Big Banks Brace for Penalties in Probes  (WSJ)
• Ex-UBS Trader Defense Could Be Threat to U.S. Forex Cases (BBG)
• Democrats Lose Their Grip on Voters With Keys to the House (WSJ)
• Weak Wages Stir Voter Ire at Obama Amid Gridlock (BBG)
• Central Banker Hero Becomes Face of Failure in Swedish Tale (BBG)
• Shale Boom Redraws Oil Routes as Alaskans Ship to Korea (BBG)
• TD’s Masrani Says U.S. Buying Spree Is History (BBG)

 

Overnight Media Digest

WSJ

* Big banks in the United States and Europe are stockpiling billions to pay for a potential trans-Atlantic settlement of allegations that they manipulated foreign-exchange rates as talks heat up with regulators on both continents. (http://on.wsj.com/1DCRQyq)

* The U.S. economy expanded at a healthy 3.5 percent annual pace during the third quarter, a sign of sustained growth fueled by government spending and a narrower trade deficit despite mounting concerns about the health of overseas economies. (http://on.wsj.com/1E5n2IJ)

* Wal-Mart is testing a program to match online prices from rivals like Amazon this holiday season, a move that could make the discounter more competitive but cut into profits. (http://on.wsj.com/1rEZjqj)

* Consumers are spending more and using cash less, a combination that is driving profits higher at MasterCard Inc and Visa Inc, the largest credit-card payment networks in the world. (http://on.wsj.com/1q6xSpJ)

* The National Highway Traffic Safety Administration ordered air bag maker Takata to disclose emails and other information on what it knows about millions of defective air bag systems in older vehicles on the road. (http://on.wsj.com/1wM7ozH)

* Bank of America Corp’s decision to make Brian Moynihan chairman as well as chief executive is drawing fire from some influential shareholders. Three of the largest pension systems in the United States are pushing back on the bank’s move, announced earlier this month. (http://on.wsj.com/1q6yhsl)

* Pacific Investment Management Co in the past month pulled all its futures-clearing business from a unit of State Street Corp after State Street asked Pimco to reduce some positions, said people familiar with the matter. (http://on.wsj.com/1DCSADZ)

 

FT

Overview U.S. prosecutors have reopened an investigation into Standard Chartered Plc on suspicions that the bank tucked away transactions that violated sanctions laws as it was settling a related action two years ago, people familiar with the matter said.

Britain’s Treasury has dodged a request from Bank of England to be granted powers over buy-to-let lending, saying it wants to gather more evidence on how the market works. The Treasury on Thursday issued a consultation paper suggesting to give the bank’s Financial Policy Committee new legal tools to control residential mortgage lending. The move would allow the Treasury to set mandatory limits on loan-to-value ratios and debt-to-income ratios in residential lending.

Under pressure from Britain’s Treasury, the Democratic Unionist party and Sinn Fein, two biggest parties in the devolved administration in Belfast, agreed to back a budget drafted by the Northern Ireland government that will see public spending be hurt by deep cuts. The budget would likely lead to public spending cuts of up to 1 billion pounds ($1.60 billion).

The Scotland Labour Party is facing a potential electoral defeat in Scotland, with a new poll conducted by Ipsos Mori poll for STV that shows just 23 percent of voters would back the Labour Party if a general election were to be held immediately, compared with 52 percent who would back the Scottish National Party. That would imply 41 Westminster seats that were won in Scotland in 2010 to be no longer in hands of the Labour Party.

 

NYT

* Russian and Ukrainian officials reached an agreement on Thursday night to resume Russian deliveries of natural gas to prevent shortages over the winter. The deal caps months of laborious talks under the aegis of European Union authorities on how much, and how soon, Ukraine needed to pay Russia for gas it has already consumed, and on the terms for future deliveries. (http://nyti.ms/1uaStQE)

* Timothy D. Cook, Apple Inc’s chief executive, said on Thursday he was gay – the most striking example of how he is in many ways making Apple a more open, less secretive company. (http://nyti.ms/1zN8K0W)

* A U.S. government report on Thursday estimated that the nation’s economic output rose at a healthy 3.5 percent annual rate in the third quarter, driven by gains across the board, bolstered by an unusual burst of military spending and a more favorable trade balance. (http://nyti.ms/1xFu1Eg)

* Citigroup Inc startled investors on Thursday with an announcement that it had to lower its third-quarter profit by $600 million because of “rapidly-evolving regulatory inquiries and investigations”. Citigroup reported its results for the quarter two weeks ago, just before the legal development arose. (http://nyti.ms/10DF4DV)

* Andy Rubin, a high-ranking Google Inc executive who spearheaded the company’s entrance into mobile phones and tablets and was in charge of the company’s nascent robotics group, has left the company to start a tech incubator focused on start-ups interested in building hardware. (http://nyti.ms/1rYoy83)

 

Canada

THE GLOBE AND MAIL

** Alberta’s new political leadership is calling on Ottawa to take another look at foreign investment rules blamed for a dramatic drop in energy investments from China. “We are urging a review of some of the quick changes that were done to our Investment Canada Act,” said Ron Hoffmann, the province’s newly named senior representative for the Asia-Pacific Basin. (http://bit.ly/1q7tXsS)

** Canadian warplanes are poised to start striking targets in Iraq, with the government saying bombing of Islamic militant forces should begin very shortly. “They haven’t launched strikes yet, but it could happen at any moment,” one government source said. (http://bit.ly/1tHl2TV)

** Prime Minister Stephen Harper has unveiled a package of family-focused tax cuts worth nearly C$27-billion ($24.12 billion) over six years that will shape the political debate heading into the 2015 election campaign. (http://bit.ly/1zjYsEe)

NATIONAL POST

** TransCanada Corp’s twin-cities news conference Thursday to announce the filing of its Energy East application to the National Energy Board was pipeline theatre at its finest. After 18 months of planning, the company presented to the world a 30,000-page document – filling 68 binders in 11 official-looking boxes – to provide evidence in support of the C$12-billion project. (http://bit.ly/1E7TLNQ)

** A chaotic Ottawa police traffic stop on Bank Street in which a plainclothes Ontario Provincial Police officer fired a single shot at a man was part of a Royal Canadian Mounted Police national security investigation, Postmedia News has learned. (http://bit.ly/13oTJUA)

** The Liberal government will reintroduce an updated version of the sex education curriculum for Ontario schools that it withdrew in 2010 because of objections from religious leaders, Education Minister Liz Sandals said Thursday. (http://bit.ly/1tooMrP)

 

China

CHINA SECURITIES JOURNAL

– Chinese carmaker SAIC Motor Corp Ltd expects to launch its “Internet car” in 2016, the firm’s chairman Chen Hong said. The car is being jointly developed with internet giant Alibaba.

SECURITIES TIMES

– Twenty brokerages have been approved to be involved in a pilot project to issue short-term bonds, the China Securities Regulatory Commission said in a statement.

SHANGHAI SECURITIES NEWS

Companies listed in Shanghai and Shenzhen in China saw profits grow 8.75 percent in the first nine months of the year, according to company filings. This was a slowdown from 14.18 percent growth in the same period last year.

SHANGHAI DAILY

Authorities in Shanghai have closed down two restaurants located within city parks in a crackdown on official extravagance and corruption, the local parks authority said.

CHINA DAILY

– Close to three-quarters of fish species in eastern Shandong province have died out since the 1970s due to severe water pollution and overfishing, the local government said.

Britain

The Times

RIO SET TO WRITE OFF $2.5 BLN ON DELAYED MINE

Rio Tinto Plc appeared set to take a $2.5 billion writedown on its huge but troubled copper project in Mongolia. Construction of the $5 billion Oyu Tolgoi mine has become ensnared in a tax dispute with the government. The mine has the potential to transform an economy that is on a par with Angola or Swaziland in national income per head. The International Monetary Fund says that it will be responsible for a third of the country’s GDP growth by the time it is operational. (http://thetim.es/1sNmxLd)

BARCLAYS SETS ASIDE 500 MLN STG FOR FOREX-RIGGING INVESTIGATION

Barclays Plc has set aside 500 million pounds ($799.75 million) to pay for the cost of the foreign exchange manipulation scandal and warned that its large investment banking arm had a disappointing third quarter. The forex provision comes as the bank prepares to settle with regulators over its role in allegedly attempting to rig foreign exchange benchmarks for its own gain. (http://thetim.es/1nU2sXP)

END NEARER FOR BRENT AS PLATFORMS GO

The giant oilfield that gave the Brent crude index its name and kicked off the North Sea boom in the 1970s is closer to being decommissioned after Shell retired two of its remaining three platforms. The Anglo-Dutch group, which operates the Brent field, said the two platforms were “no longer economical”, but it added that Brent Alpha and Brent Bravo had “significantly exceeded’ their original expected production duration after producing oil and gas for more than 35 years. (http://thetim.es/1tjXaWq)

The Telegraph

MORTGAGE COSTS COULD RISE AS BANK OF ENGLAND INTRODUCES TOUGH SAFETY NETS FOR BANKS

Britain’s banks will be forced to maintain significant financial safety nets under rules announced on Friday that industry leaders say could raise the cost of mortgages and penalise building societies. The Bank of England is expected to go beyond global standards in revealing the leverage ratio, the level of financial reserves banks must hold to protect against a downturn, it expects banks to adopt. (http://bit.ly/13no5ab)

BP RENEWS CALLS FOR OIL SPILL COMPENSATION CHIEF TO BE SACKED

BP Plc has stepped up calls for the man in charge of the Gulf of Mexico compensation fund to be sacked, after discovering a trove of new evidence that allegedly casts doubt on his impartiality. The oil giant had already asked a U.S. court to remove Patrick Juneau from his post overseeing payouts to victims of the Deepwater Horizon disaster, after he was accused of misleading the court about a potential conflict of interest. (http://bit.ly/1FZPU76)

OFFSHORE WIND FARMS MAY BE SCRAPPED DUE TO BUDGET CAP, SCOTTISHPOWER WARNS

Several proposed offshore wind farms may be scrapped in coming months because the government is not awarding enough subsidies, the head of energy giant ScottishPower has said. Keith Anderson, chief corporate officer, said it was cutting the size of its planned 240-turbine East Anglia offshore wind farm because the budget for subsidies to be awarded this year was “not big enough”. The project could be scrapped altogether if it did not secure a subsidy contract this year. (http://bit.ly/1rXxN8y)

Sky News EX-TESCO BOSS LEAHY EYES METAPACK SHARE SALE

A logistics firm that counts the former Tesco Plc boss Sir Terry Leahy among its directors is drawing up plans for a share sale that would crystallise multi-million pound fortunes for its investors. MetaPack, which provides Internet delivery services to leading retailers such as Marks and Spencer, has appointed GP Bullhound, a technology-focused investment bank, to work on the fundraising. (http://bit.ly/1wNC6dd)

RBS LEANS TOWARDS NAMING EY AS NEW AUDITOR

Royal Bank of Scotland Group Plc (RBS) is leaning towards appointing the smallest of the Big Four accountancy firms as its new auditor, a move that would spell the end of its relationship with Fred Goodwin’s erstwhile employer. RBS is closing in on an agreement to hand EY its lucrative audit mandate, although insiders insisted that a final decision had not yet been made and that a rival could yet emerge as the winner. KPMG is also in contention for the role, and an announcement is not expected to be made alongside RBS’s third-quarter results on Friday. (http://bit.ly/1xFXr51)

 

Fly On The Wall Pre-Morning Buzz

ECONOMIC REPORTS

Domestic economic reports scheduled for today include:
Chicago PMI for October at 9:45–consensus 60.5
University of Michigan consumer sentiment index for October at 9:55–consensus 86.4

ANALYST RESEARCH

Upgrades

AXT, Inc. (AXTI) upgraded to Buy from Neutral at B. Riley
Acadia (ACHC) upgraded to Buy from Hold at Deutsche Bank
Atmel (ATML) upgraded to Outperform from Market Perform at FBR Capital
Blue Nile (NILE) upgraded to Buy from Neutral at BofA/Merrill
CEVA (CEVA) upgraded to Buy from Hold at Wunderlich
Coty (COTY) upgraded to Buy from Hold at Stifel
Higher One (ONE) upgraded to Neutral from Sell at Compass Point
Imperva (IMPV) upgraded to Overweight from Neutral at Piper Jaffray
Incyte (INCY) upgraded to Neutral from Sell at Goldman
Intrepid Potash (IPI) upgraded to Market Perform from Underperform at BMO Capital
Medical Properties upgraded to Outperform from Market Perform at JMP Securities
MercadoLibre (MELI) upgraded to Buy from Neutral at BofA/Merrill
Mohawk (MHK) upgraded to Strong Buy from Outperform at Raymond James
SandRidge Mississippian Trust II (SDR) upgraded to Market Perform  at Raymond James
Seattle Genetics (SGEN) upgraded to Hold from Sell at Cantor
Veeco (VECO) upgraded to Positive from Neutral at Susquehanna

Downgrades

ARMOUR Residential (ARR) downgraded to Neutral from Buy at Compass Point
Aegerion (AEGR) downgraded to Hold from Buy at Deutsche Bank
Aegerion (AEGR) downgraded to Hold from Buy at Jefferies
Aegerion (AEGR) downgraded to Neutral from Overweight at JPMorgan
American States Water (AWR) downgraded to Hold from Buy at Brean Capital
Audience (ADNC) downgraded to Hold from Buy at Topeka
Audience (ADNC) downgraded to Sector Perform from Outperform at Pacific Crest
Avon Products (AVP) downgraded to Hold from Buy at Stifel
Avon Products (AVP) downgraded to Neutral from Buy at B. Riley
Bottomline Technologies (EPAY) downgraded to Hold from Buy at Canaccord
Bottomline Technologies (EPAY) downgraded to Outperform at Raymond James
CACI (CACI) downgraded to Neutral from Overweight at JPMorgan
Canadian Utilities (CDUAF) downgraded to Underweight from Equal Weight at Barclays
Chesapeake Utilities (CPK) downgraded to Hold from Buy at Brean Capital
Consolidated Communications (CNSL) downgraded to Hold from Buy at Jefferies
Hyster-Yale Materials (HY) downgraded to Neutral at Global Hunter
Legacy Reserves (LGCY) downgraded to Outperform from Top Pick at RBC Capital
M.D.C. Holdings (MDC) downgraded to Neutral from Buy at Sterne Agee
Midcoast Energy (MEP) downgraded to Neutral from Outperform at Credit Suisse
Pacira (PCRX) downgraded to Neutral from Buy at BofA/Merrill
Park Sterling Bank (PSTB) downgraded to Market Perform from Outperform at Raymond James
Regional Management (RM) downgraded to Hold from Buy at Jefferies
Regional Management (RM) downgraded to Market Perform at JMP Securities
Regional Management (RM) downgraded to Market Perform from Outperform at FBR Capital
STAAR Surgical (STAA) downgraded to Hold from Buy at Canaccord
STAAR Surgical (STAA) downgraded to Market Perform from Outperform at William Blair
TASER (TASR) downgraded to Sell from Fair Value at CRT Capital
Time Warner Cable (TWC) downgraded to Hold from Buy at Brean Capital
Trupanion (TRUP) downgraded to Equal Weight from Overweight at Barclays
Ultra Petroleum (UPL) downgraded to Neutral from Buy at UBS
Vectren (VVC) downgraded to Hold from Buy at Brean Capital
WGL Holdings (WGL) downgraded to Hold from Buy at Brean Capital
Walter Energy (WLT) downgraded to Underweight from Hold at BB&T
Westport (WPRT) downgraded to Hold from Buy at Deutsche Bank

Initiations

Eros International (EROS) initiated with an Outperform at Macquarie
New Media (NEWM) initiated with a Buy, $41 price target at Citigroup
Sabra Health Care (SBRA) initiated with a Market Perform at Wells Fargo

COMPANY NEWS

Citigroup (C) lowered Q3 results due to $600M increase in legal accruals
Omega Healthcare (OHI) to acquire all outstanding shares of Aviv REIT (AVIV) in stock-for-stock deal valued at $3B
Royal Bank of Scotland (RBS) CEO said cost reduction remains on track, has ‘long list of conduct and litigation issues’
FDA expressed willingness to conduct ‘rolling review’ of Sarepta (SRPT) eteplirsen NDA
Starbucks (SBUX) said it plans to begin food, beverage delivery service in FY15
Boyd Gaming (BYD) announced that it is evaluating possibility of forming REIT with its real estate assets
LinkedIn (LNKD) reported Q3 members 332M vs. 313M last quarter

EARNINGS

Companies that beat consensus earnings expectations last night and today include:

GoPro (GPRO), LinkedIn (LNKD), Groupon (GRPN), Mylan (MYL), Exelis (XLS), Aon plc (AON), Newell Rubbermaid (NWL), GAIN Capital (GCAP), CommScope (COMM), Genesee & Wyoming (GWR), Tesoro (TSO), Investors Bancorp (ISBC), The Bancorp (TBBK), Empire District Electric (EDE), Green Bancorp (GNBC), Oil States (OIS), AptarGroup (ATR), Heritage Oaks (HEOP), Immersion (IMMR), Oplink Communications (OPLK), Energen (EGN), Ziopharm (ZIOP), TeleNav (TNAV), Ashford Hospitality Prime (AHP), Mercer (MERC), Greatbatch (GB), Baylake Corp. (BYLK), eHealth (EHTH), Cohu (COHU), FreightCar America (RAIL), Globus Medical (GMED), Emulex (ELX), Audience (ADNC), MasTec (MTZ), World Fuel Services (INT), Newpark Resources (NR), Boston Beer (SAM), Zendesk (ZEN), Control4 (CTRL), Vocera (VCRA), MaxLinear (MXL), Ellie Mae (ELLI), Bottomline Technologies (EPAY), Midcoast Energy (MEP), AXT, Inc. (AXTI), YRC Worldwide (YRCW), Lantronix (LTRX), Synageva (GEVA), Brightcove (BCOV), ServiceSource (SREV), Scansource (SCSC), GenMark (GNMK), Westport (WPRT), Seattle Genetics (SGEN), Molina Healthcare (MOH), Silicon Image (SIMG), AMN Healthcare (AHS), Trecora Resources (TREC), Imperva (IMPV), Green Dot (GDOT), Fluor (FLR), Electro Scientific (ESIO), DigitalGlobe (DGI), Live Nation (LYV), NeuStar (NSR), AtriCure (ATRC), FleetCor (FLT), National Instruments (NATI), MercadoLibre (MELI), Cytokinetics (CYTK), Expedia (EXPE), OncoGenex (OGXI), Castlight Health (CSLT), Western Union (WU), Federated National (FNHC), Columbia Sportswear (COLM), Affymetrix (AFFX)

Companies that missed consensus earnings expectations include:

NTELOS (NTLS), Pattern Energy (PEGI), Vantage Drilling (VTG), MB Financial (MBFI), Key Energy (KEG), Tesoro Logistics (TLLP), A.V. Homes (AVHI), , Eldorado Gold (EGO), Erie Indemnity (ERIE), Saul Centers (BFS), QuinStreet (QNST), Cheniere Energy (LNG), WSFS Financial (WSFS), Alliqua (ALQA), First Financial Bancorp (FFBC), CSP Inc. (CSPI), ON Semiconductor (ONNN), Meta Financial (CASH), Trimble (TRMB), Alphatec (ATEC), Tempur Sealy (TPX), Ikanos (IKAN), Digi International (DGII), Aegerion (AEGR), Republic Services (RSG), Unwired Planet (UPIP), NuVasive (NUVA), Tallgrass Energy (TEP), American Vanguard (AVD), Theravance (THRX), A10 Networks (ATEN), Boyd Gaming (BYD), First Bancorp (fbnc), Omnicell (OMCL), STAAR Surgical (STAA), Standard Pacific (SPF), Chemed (CHE), Outerwall (OUTR), Regional Management (RM), Fluidigm (FLDM)

Companies that matched consensus earnings expectations include:

Starbucks (SBUX), Cheniere Energy Partners (CQH), PCTEL, Inc. (PCTI), Territorial Bancorp (TBNK), Kofax (KFX), Cavco Industries (CVCO), Select Medical (SEM), Spansion (CODE), Endologix (ELGX), Microchip (MCHP), TeleCommunication Systems (TSYS), Pixelworks (PXLW), SciQuest (SQI), Virtusa (VRTU), PerkinElmer (PKI), Bally Technologies (BYI), Addus HomeCare (ADUS), Tuesday Morning (TUES)

NEWSPAPERS/WEBSITES

McDonald’s (MCD) reorganizing U.S. structure to respond to customers’ tastes, WSJ reports
Stratasys (SSYS) CEO sees growth despite HP (HPQ) 3D printing plans, Reuters reports
Sony (SNE) sees ‘significant reduction’ in Chinese mobile market, FT reports
Twitter (TWTR) demotes head of product Daniel Graf, WSJ reports
Google’s (GOOG) robotics head Andy Rubin leaving company, WSJ reports
Russia, Ukraine reach deal on natural gas, NY Times reports (OGZPY, E, TOT, BP, RDS.A, RDS.B)

SYNDICATE

Chimerix (CMRX) 3.65M share Secondary priced at $29.00
Corporate Office Properties (OFC) files to sell 4.8M shares of common stock
La Quinta (LQ) files to sell 20M shares of common stock for holders

via Zero Hedge http://ift.tt/1wQ00F3 Tyler Durden

Two days ago, when QE ended and knowing that the market is vastly overstimating the likelihood of a full-blown ECB public debt QE, we tweeted the following:

It’s all up to the BOJ now

— zerohedge (@zerohedge) October 29, 2014

Little did we know how right we would be just 48 hours later.

Because as previously reported, the reason why this morning futures are about to surpass record highs is because while the rest of the world was sleeping, the BOJ stunned those few who were looking at Bloomberg screens with a decision to boost QE, announcing it would monetize JPY80 trillion in JGBs, up from the JPY60-70 trillion currently and expand the universe of eligible for monetization securities. A decision which will forever be known in FX folklore as the great Halloween Yen massacre.

In retrospect, the BOJ’s announcement should have been anticipated. Recall that yesterday, the biggest non-story was the regurgitated headline that the Japanese Pension fund would boost its holdings of domestic and foreign stock from 12% to 25%, while slashing its Japan bond holdings from 60% to 35%, something that had been leaked previously. The full changes:

• Domestic stocks raised to 25% from 12%
• Japan bonds cut to 35% from 60%
• Overseas shares 25% from 12%
• Foreign debt 15% from 11%

But while Japan’s eagerness to bet its retirees lifetime savings on GoPro had been well-known previously, it also meant that someone would have to step in and buy the hundreds of billions of JGBs the GPIF had to sell in what over the past year became the world’s most illiquid bond market, often going for days without a single transaction.

That someone, a few hours ago, was revealed to be the Bank of Japan, which in addition to now clearly becoming the only buyer of only resort for Japanese bonds, has tipped its hands that it is going all in on pushing the Nikkei higher at all costs, even if it means crushing the domestic economy, something which even Keynesian “experts” say will be the outcome if the Yen continues to slide below 110 for the dollar.

So for all those wondering why futures are back to all time highs, here is the reason:

• ITALIAN SEPT. UNEMPLOYMENT RATE RISES TO 12.6%, MATCHING RECORD

No wait, sorry, that’s reality – something that hasn’t mattered to markets since 2008. Here is the reason, all thanks to CTRL-P:

• KURODA SAYS EASED TO MAINTAIN POSITIVE CHANGES IN EXPECTATIONS
• KURODA: TODAY’S DECISION SHOWS BOJ’S UNWAVERING DETERMINATION

In other words, several days after Larry Fink mysteriously visited Abe, the BOJ announced it would do everything in its power push the Nikkei into green for the year, which it did with its announcement overnight, and to truly crush the local population’s buying power.

Kuroda also had some truly comedic one liners:

•  KURODA: DON’T THINK EXIT FROM EASING WILL BE DIFFICULT

And now that Japan has gone all in on runaway inflation, we expect that Abe’s reign of terror to be cut short as finally the people’s anger at this Keynesian madman on top of it all will finally explode.

The good news in all of this is that the desperation is increasingly palpable, and since Japan is about to go pro in deflation exporting to the US and mostly Europe, expect even more violent reprisals from the world’s other central banks and so on until finally it is only central banks left trading with each other. Much like today.

In the meantime, here is what is going on:

• S&P 500 futures up 1.2% to 2011.6
• Stoxx 600 up 1.4% to 335.5
• US 10Yr yield up 1bps to 2.32%
• German 10Yr yield down 1bps to 0.84%
• MSCI Asia Pacific up 1.3% to 142.2

And the punchline:

• Gold spot down 2.2% to $1172.3/oz

Because in the new normal diluting your currency even more is even more negative for undilutable currencies.

Some more details on what the latest massive central bank intervention did to what only laughably can one now call “markets” via BBG: European shares rise with the bank and financial services sectors outperforming and media, retail underperforming. Asian stocks rise led by Nikkei as Bank of Japan’s Kuroda raises stimulus to another record. Euro-area inflation data matched forecasts. Companies including RBS, WPP, IAG, Banco Popular, BNP, AB-InBev released results. German Xetra trading halted by computer malfunction. The French and Italian markets are the best-performing larger bourses, Swedish the worst. The euro is weaker against the dollar. French 10yr bond yields fall; Irish yields decline. Commodities decline, with silver, gold underperforming and natural gas outperforming.

Bulletin headline from Bloomberg and RanSquawk

• The BoJ takes centre stage overnight after unexpectedly increasing their QQE programme by JPY 10trl, sending the Nikkei 225 surging higher by 4.8% to its highest level since 2007, the e-mini S&P through 2,000, USD/JPY above 111.00 to its highest level since Jan’08 and spot gold to its lowest level since 2010.
• ECB’s Nowotny lifts Bunds after deviating from his usual hawkish script by adopting a never say never approach to an ECB QE programme.
• Looking ahead, attention turns towards US personal income & spending, Chicago PMI and Univ. of Michigan confidence.
• Treasuries extend second week of losses after Fed ends QE as Bank of Japan expands what was already an unprecedentedly large monetary-stimulus program, boosting stocks and sending the yen tumbling.
• BOJ, which also cut its forecasts for inflation and growth, voted to raise annual target for enlarging the monetary base to JPY80t ($724b), up from JPY60t-JBP70t
• Japan’s $1.1t Government Pension Investment Fund announced it will put half its holdings in local and foreign stocks, start investing in alternative assets and cut its domestic bond allocations to 35% of assets from 60%
• Euro-area inflation rose 0.4% in October, up from a five-year low in October and in line with median estimate in Bloomberg survey; a separate report showed unemployment holding at 11.5% in September
• Russia’s central bank increased its key interest rate to 9.5% from 8%, more than forecast, bringing it to the highest level since it was introduced 13 months ago to halt a currency run that’s stoking inflation
• Chinese bank deposits dropped following a crackdown on lenders manipulating their numbers and “illicit” means of attracting money, threatening to weigh on credit growth and hinder efforts to reignite the economy
• Hong Kong protesters said they may attempt to visit Beijing next week to seek talks with China’s top leaders while the nation plays host to a global summit
• Lloyds Banking Group Plc may still register Scottish Widows Plc, its 200-year-old Scottish insurance division, in England even after voter rejected independence in a referendum last month, said two people with direct knowledge of the deliberations
• Critics and allies agree Israel PM Netanyahu has much to gain on home front by defying Obama; the latest falling-out was sparked by Israel’s plan to build more than 1,000 homes for Jewish residents in areas of Jerusalem the Palestinians claim for their hoped-for state
• Sovereign yields mostly lower. Asian stocks surge, led by Nikkei +4.8% to highest in seven years. European stocks, U.S. equity-index futures gain. Brent crude lower, copper -1.1%, gold -2.2%

US Event Calendar

• 8:30am: Employment Cost Index, 3Q, est. 0.5% (prior 0.7%)
• 8:30am: Personal Income, Sept., est. 0.3% (prior 0.3%)
• Personal Spending, Sept., est. 0.1% (prior 0.5%)
• PCE Deflator m/m, Sept., est. 0.1% (prior 0.0%); PCE Deflator y/y, Sept., est. 1.5% (prior 1.5%)
• PCE Core m/m, Sept., est. 0.1% (prior 0.1%); PCE Core y/y, Sept., est. 1.5% (prior 1.5%)
• 9:00am: ISM Milwaukee, Oct., est. 60 (prior 63.18)
• 9:45am: MNI Chicago Business Barometer (purchasing managers), Oct., est. 60 (prior 60.5)
• 9:55am: UofMich. Consumer Sentiment Index, Oct. final, est.86.4 (prior 86.4)

ASIA

JGBs trade up 6 ticks at 146.68, after paring their earlier sharp gains as Japan’s GPIF panel approved cutting JGB allocation to 35%, according to sources. Prices touched a fresh record high after the BoJ unexpectedly increased its JGB purchases by JPY 30trl per year. The Nikkei 225 closed up 4.8%, at its highest level since 2007, after the BoJ unexpectedly increased their QQE program. Furthermore, the index was also supported by reports that Japan’s GPIF panel approved raising domestic stock holding to 25%, according to government sources. The Hang Seng closed up 1.3% after opening at its best levels since Sep. 25, while the Shanghai Comp closed up 1.2%, both indices bolstered by several upbeat corporate earnings.

FIXED INCOME & EQUITIES

The aforementioned action taken by the GPIF very much set the tone for the European open, with cash futures opening firmly in the green (Eurostoxx 50 currently +1.7%). On a sector specific basis, financial names lead the way for Europe following strong earnings reports from RBS (+3.4%) and BNP (+3.9%). However, gains for the sector have been capped following further downward momentum for Italian banks after Moody’s have initiated a review for a potential downgrade on various peripheral banks.

Despite opening lower, the downside for Bunds was short-lived following some comments from ECB’s Nowotny who went against the grain of his usual hawkish rhetoric, more specifically, the central banker said never say never to QE in Eurozone, while refusing to rule out expanding the purchasing programme to include more corporate bonds. This saw a gradual turnaround in Bunds as they broke above 151.00, with further positive sentiment provided by, a weak German retail sales report and the fact that the GPIF have increased ratio of foreign bonds to 15% vs. Prev.11%.

FX

The main focus for FX markets today has been the broad-based USD strength which has dominated a bulk of the price action in FX markets and pushed JPY lower against its major counterparts with USD/JPY breaking above 111.00 to reach its highest level since Jan’08. Elsewhere, NZD saw some strength overnight after Fonterra announced that China has lifted its temporary suspension on base powder exports which has been in place since August 2013. Despite initially, being out-muscled by the greenback, the RUB clawed back some ground after the Russian central bank unexpectedly hiked rates by 150bps, with the market looking for just a 50bps cut. However, the move lower in USD/RUB was capped by the bank not abolishing rule-based interventions.

COMMODITIES

Movements in the USD-index have dictated the state of play for the commodity complex, with spot gold falling to its lowest level since 2010, while both WTI and Brent crude futures reside in the red. For base metals, copper is poised for its first monthly advance since July ahead of tomorrow’s Chinese official PMI release with the red metal benefitting from improved Asian investor appetite. More specifically for energy prices, Brent crude is heading for a sixth consecutive loss which would be the longest decline since 2002 as global supplies and the stronger USD continue to weigh on investor sentiment.

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In a surprise move given all the recent congratulatory bullshit from Abe and Kuroda on breaking the back of Japan’s deflation and bring about recovery (forgetting to mention record high misery index, surging bankruptcies and a crushed consumer), the Bank of Japan (by a 5-4 vote) raised its bond-buying program from JPY 70 trillion to 80 trillion… and increases its ETF buying to JPY 3 trillion. This move, on the heels of more confirmation of broader foreign asset purchases in Japan’s GPIF sent USDJPY instantly gapping 1 big figure higher to 110.30 and Nikkei futures instantly rose 400 points. S&P futures are also surging. Gold and silver are tanking.

• *BOJ UNEXPECTEDLY TARGETS BIGGER EXPANSION OF MONETARY BASE
• *BOJ TARGETS 80T YEN ANNUAL EXPANSION IN MONETARY BASE
• *BOJ SEES RISKS IN CHANGING DEFLATIONARY MINDSET
• *BOJ AIMS FOR ANNUAL INCREASE OF 80T YEN IN JGB HOLDINGS
• *BOJ EXPANDS PURCHASES OF ETFS TO 3T YEN

BoJ Statement

 

 

• *YEN DROPS TO 6-YR LOW AT 110.12 PER DOLLAR AFTER BOJ
• *NIKKEI 225 SURGES MOST SINCE JUNE 2013 AFTER BOJ ADDS TO EASING
  

Nikkei 225 is up 700 points from this afternoon’s 2-week old headline and broken markets!!

 

S&P futures are surging…

 

Gold was pushed lower…

 

*  *  *

It seems money does grow on trees…

*  *  *

Welcome to your fundamental-driven markets!! The farce is almost complete.

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Submitted by The Dissident Dad via Mike Krieger’s Liberty Blitzkrieg blog,

Remember those weird kids who didn’t say the Pledge of Allegiance in school? They either sat down or just stood up silently. I sure do. Most likely for religious reasons, but I remember thinking to myself as a kid that it was wrong not to say the pledge aloud with the rest of us. As I got older in my teenage years, I even felt that those kids were not being respectful.

Some adults may even give them the old, “well, if you don’t like it then you can leave” routine that is mentioned every time a minority opts out of the majority’s way of doing things.

Homeschooling my children will really make this a non-issue; however, my nieces were reciting the American Pledge of Allegiance the other day while playing with my children. In fact, here in Texas the kids recite both the American and Texas Pledge of Allegiance before class.

After hearing them recite it, and of course remembering the 2,500 or so times I said it in my lifetime, I started to think about the purpose and real meaning of this pledge that millions of school-aged children recite every morning Monday through Friday.

A pledge, of course, is a vow, an oath, or a commitment. Allegiance is defined as loyalty, devotion, and obedience. In fact, the antonyms for allegiance are treachery and disloyalty.

Crazy when you think about it, right? Do we really want our kids pledging obedience and loyalty to the U.S. federal government? Especially when the pledge itself is masked with a lie. I mean, it ends with, “with liberty and justice for all.” Now that’s a crock of shit right there. Not one arrest in the financial sector for the 2008 crisis, not one investigation into the 2003 Iraq invasion where no WMDs were found, and a complete cover-up of the events on 9/11, i.e., Building 7. Liberty and justice for all… how about we ask Edward Snowden about that? His patriotic actions were described as treachery and disloyalty.

Nationalism and blind patriotism is crucial in keeping a population dumbed-down and ignorant, which is why if you think about it, pledging allegiance to the government we have today is truly a backwards thing to do. Teaching it to a small child is particularly degrading.

As a dad who is proud of my own liberty, this makes life tough sometimes. Do I teach my kids the truth or go with the flow?

On the surface it seems black and white, but it’s not. Teaching your children about certain truths that make them the odd kid out is not exactly what a parent wants for their child. My wife and I are constantly turning to each other and asking ourselves, should we make a stand on this? Because if we do, it might make it hard for the kids.

A great example comes from a friend of mine with an 11-year-old son who stood up on 9/11 at school and countered the teacher’s lesson for the anniversary and told her about the Loose Change version. It was awkward to say the least. To simply question the events of 9/11 go against the state’s religion of nationalism, so for an 11-year-old boy to bring it up in a classroom…you can imagine the trouble it caused.

Teaching my children about the oligarchs and the current state of our leaders in government is not something that I take lightly. I realize that some of our core values, like the belief in liberty, respect for all life, and individual sovereignty will make them the odd kid out sometimes.

Being surrounded by people who have been taught, just as I was, to pledge allegiance to the state, is the unfortunate reality we are all confronted with. something that is so deeply engrained that the best I can do is teach my children to think for themselves and decide on their own. Figuring out how to best teach my children the danger of such blind allegiance is without a doubt the most difficult task I face as a father.

via Zero Hedge http://ift.tt/10632Xr Tyler Durden

On balance, Morgan Stanley feels that broad-based QE, (i.e. large-scale purchases of government bonds) is further away for the ECB than the market currently believes. Presently they only assign a subjective 40% probability to such a step being taken; whereas the euro rates market is already pricing in the ECB resorting to a broad-based purchase programme with a very high probability of 80-100%. Goldman agrees warning specifically that "Sovereign QE is not imminent… and indeed may never happen." It appears no matter what, disappointment is guaranteed for the market.

 

As Morgan Stanley points out, ahead of the November ECB meeting, the newswires seem to be picking up again on the possibility of the ECB taking additional policy measures before year-end. Our interest rate strategy team believes that the bond market currently assigns a very high probability of 80-100% or higher to the ECB starting to buy government bonds. In our view, such expectations are likely to be disappointed.

QE is not a panacea: In our view, the negative long-term side-effects of QE on the financial system would undermine the ECB’s efforts to repair the bank lending channel through the AQR, the TLTROs and the two purchase programmes. Furthermore, we think QE would be inconsistent with the ECB’s recent decision to cut the deposit rate further into negative territory.

…

In our view, the ECB would face some serious political and legal risks if were to move into the sovereign space. Given the explicit ban on monetisation of government debt in the EU Treaty, it might be easier for the ECB to buy private sector debt instead of public sector debt – especially with the German Constitutional Court already taking a critical view on the compatibility of OMT with the German Constitution as well as the EU Treaty. This legal dispute also would put the Bundesbank in a very difficult position should the Governing Council decide – contrary to our expectation – to push ahead with government bond purchases.

For QE not just to foster ‘Japanification’, the ECB would need to make sure that governments press on with structural and, if possible also, institutional reforms. One way to keep the pressures on governments would be to link the parameters of the purchases, notably the countries whose bonds are bought, to fulfilling the requirements of the Stability and Growth Pact (SGP). This link would reinforce the governance rules EMU has been built on, notably rule-based fiscal discipline. Given that the decision as to whether a country is making enough of an effort to bring down its deficit/debt is taken by the Ecofin, finance ministers would effectively need to sign off on the list of sovereigns the ECB buys. This would free the Governing Council from taking politically charged decisions on countries repeatedly breaching their SGP targets.

Beyond these problems associated with sovereign QE, we also believe that the ECB’s surprise decision to cut the deposit rate again is inconsistent with a central bank that is close to embarking on a major QE programme. After all, the negative deposit rate is effectively a tax on the excess reserves that the banks hold. Having recently increased this tax from 10bp to 20bp is to us at odds with the direct consequence of a major QE programme that is to pump excess reserves into the banking sector. For the two policies to be consistent with each other, the ECB would need to raise the deposit rate (and possibly also the refi rate) before expanding its balance sheet through the excess reserves of the banking system. In our view, the Executive Board would be aware of this inconsistency and therefore would not have pushed for another rate cut in September if it was in the final stages of preparing a QE programme.

Because a negative deposit rate incentivizes banks to reduce their excess reserves at the ECB as much as possible, the negative deposit rate also limits the ECB’s ability to increase the size of its balance sheet materially. Instead of piling any payment received from the ECB in selling assets into a QE programme into excess reserves at the Bank, like their counterparts in the US and in the UK do, euro area banks will likely try to reduce their borrowing under the various ECB refinancing operations instead. Hence investors, who are convinced that the ECB needs to do QE, might also want to consider the prospect of an interest rate increase that would need to coincide with it to make it effective.

Furthermore, we would highlight that broad-based asset purchases could be counterproductive to the health of the financial sector. This is because after the initial relief rally, historically they have caused lower returns on a variety of assets, notably government bonds, over the longer run. The dominance of bank finance in the euro area explains why the bank lending channel is the main focus of the ECB’s policies, ranging from the AQR to the TLTROs and the asset purchase programmes at the moment. At the present juncture, the ECB will hope to leverage synergy effects between the AQR, the TLTROs, the ABSPP and the CBPP3 in order to bring down bank lending rates, reduce financial fragmentation, slow the pace of deleveraging and eventually boost new lending volumes.
 

But the market is fully pricing it in already…

We estimate that the euro rates market is already pricing in the ECB resorting to a broad-based purchase programme with a very high probability, i.e., 80-100%. This figure is based on work we previously did, which suggests that a €1 trillion government bond purchase programme would depress 10y Bund yields by 50-70bp, the assumption that QE affects bond yields primarily through depressing the interest rate term premium, and from assigning the majority of the 60bp decline in 10y Bund term premium year-to-date to increased expectations of QE, as the other factors that typically drive term premia (i.e., interest rate and inflation vol) cannot explain the scale of the decline.

However, it would be consistent with the experience of QE in the US and UK, where the announcement of the subsequent purchase programmes did not lead to lower government bond yields.

*  *  *

Paradoxically, the extent to which the market is expecting QE reduces the need for the ECB to do QE, to the extent that the ECB would be looking to engineer euro sovereign yields lower.

*  *  *

Goldman agrees, warning that ECB sovereign QE: Not so imminent…

The unique institutional setting of the Euro area increases the (political) fixed cost of adopting sovereign QE relative to other jurisdictions. In an uncertain macroeconomic environment, higher fixed costs increase the option value of waiting before engaging in sovereign purchases. This reasoning both: (1) explains why the ECB has been a laggard relative to its peers in making sovereign purchases in the past; and (2) suggests that the ECB will continue to prove more reluctant to engage in sovereign QE in the future than the conventional market narrative assumes.

ECB sovereign QE: Challenges to the conventional narrative
Market participants currently focus on the prospects for ‘sovereign QE’ by the ECB.

A typical narrative is as follows. In the Euro area, inflation is, for all practical purposes, at zero. Likewise for growth and policy interest rates. To head off protracted, Japan-like deflation and stagnation, something needs to be done. Conventional policy easing has been exhausted: unconventional measures are required. Sovereign QE – large-scale central bank purchases of government debt – has worked in the US and UK (even if we are not quite sure why). Ultimately, the ECB will have no option but to follow the Federal Reserve and Bank of England along this path. And given ongoing declines in inflation and the recent weakening of area-wide growth, there is no time to waste in moving forward.

This narrative contains important truths. On our reading, the leadership of the ECB recognises rising threats to price and macroeconomic stability in the Euro area. This prompted the ECB to ease policy in June and September. And there is a preparedness to do more. We expect further measures from the ECB over the coming quarters.

Yet sovereign QE by the ECB is not part of our base case for 2015. The Euro area is not the US or the UK: rather, it is a unique – and uniquely fragile – construct of 18 (soon to be 19) separate countries, which share a common currency but have their own fiscal policies and political institutions. And the autumn of 2014 is not the spring of 2009: the starting point for implementation of sovereign QE is quite different today.

On this basis, we identify three (inter-related) reasons why sovereign QE in the Euro area may be less likely than the conventional narrative presumes.

• Political constraints. The distributional impact of sovereign QE is likely to be more politically contentious in a multi-country monetary union (such as the Euro area) (especially if it has a cross-border character) than in a unitary state (like the US, UK or Japan). Political considerations play an important role in constraining ECB actions.
• Economic effectiveness. With the risk-free yield curve in the Euro area already both low and flat, and credit spreads compressed, the scope for sovereign QE to ease domestic financial conditions further from here is limited.
• Financial structure. The Euro area has a bank-centred financial system. Direct market interventions such as sovereign QE may be less effective in this environment, should the banking system fail to transmit any easing impulse into the real economy.

Such considerations help to explain why we have not seen sovereign QE from the ECB as yet. They also weigh against the announcement of sovereign QE in the coming months.
Sovereign QE in the Euro area is more distant than the conventional narrative implies (and, indeed, may never happen). That said, it is clearly not impossible. As reflected in our ECB preview published earlier this week, we see a 1-in-3 chance of sovereign QE by the ECB through the middle of next year. There is (and always has been) a point at which the macro data are bad enough to trigger sovereign QE, notwithstanding the factors listed above that weigh against it. As the Euro area macro data deteriorate (and particularly as longer-term inflation expectations drift downwards (Exhibit 3)), this trigger point gets closer.

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