Stocks Spike On Reuters’ “ECB Does QE” Leak Du Jour

It never gets old… Stocks have spiked – leaving all other asset classes in the dust – as Reuters unleashes their latest rumor:

ECB STIMULUS MAY LACK DESIRED SCALE, QE AN OPTION ACCORDING TO SOURCES: REUTERS

Reuters adds that the ECB plan to buy private sector assets may fall short and pressure is likely to build for bolder action early next year.

The market reacts…

As Reuters reports,

The European Central Bank's plan to buy private sector assets may fall short of its goal and pressure is likely to build for bolder action early next year, with government bond purchases an option, ECB sources said.

The euro zone's central bank started buying covered bonds last week and plans to buy asset-backed securities (ABS), or bundled loans, later this year — both with a view to fostering lending to businesses and thereby supporting the bloc's economy.

ECB President Mario Draghi has said he wants the purchase plans, together with the provision of new cheap loans to banks, to increase the ECB's balance sheet towards its levels of early 2012 — up to 1 trillion euros higher than today.

But the illiquid nature of the ABS market and the scarcity of quality paper available to buy means the ECB may struggle to achieve the stimulus effect it wants with the current programme.

The ECB's offer to banks in December of a second round of long-term loans, or TLTROs, may help it make progress towards the balance sheet target, but the paltry take-up of the first offer — just 82.6 billion euros — does not bode well.

"Some people know that this (the current purchase plan) will not work. It's too small and the problem is much, much bigger," said one source familiar with the matter.

The second source added: "We're perfectly aware these two markets are not that simple and certainly on their own will not be sufficient to expand our balance sheet as we intend."

Asked to comment for this story, an ECB spokesman said: "The targeted long term refinancing operations (TLTRO) and the purchases of ABS and covered bonds have to be seen as a package. The overall impact of these three measures on the balance sheet size of the Eurosystem will be sizeable."