It has been a rollercoaster ride for stocks so far, and just as ES was ramping back to intraday highs, moments ago Bloomberg blasted a headline which surprised market watchers, according to which none other than the ECB may follow the BOJ in tapering its QE next.
- ECB SAID TO NEAR CONSENSUS ON NEED TO TAPER QE BEFORE IT ENDS
- ECB QE TAPERING SCENARIOS SAID TO INCLUDE SLOWING BY EU10B/MTH
- ECB TIMING ON TAPERING SAID TO DEPEND ON ECONOMIC OUTLOOK
As Bloomberg notes, there is an informal consensus among ECB policy makers is that QE will need to be wound down gradually when decision is taken to end the program, say people familiar with the matter.
One scenario is to taper QE in steps of EU10b/month, people say. Decision on when to start tapering depends on economic outlook, program could still be extended beyond current end- date of March 2017 at full pace of EU80b/month. People ask not to be named as deliberations are confidential. Bloomberg also notes that the Governing Council has not discussed the future path of QE, ECB says in a statement.
The BBG report follow a previous report from WSJ that the ECB appears to be cooling on a signature policy: negative interest rates. Over the past 24 hours, two senior ECB officials have warned that subzero rates could, over time, cause banks to reduce lending to the economy. That is the opposite of what the central bank hopes to achieve with its easy-money policies.
The ECB had until recently stressed the benefits of negative interest rates, which it introduced in mid-2014, and carefully left open the door to a fresh rate cut.
The shift in emphasis comes amid a protracted slump in European bank stocks, which have fallen around 20% this year as investors worry about their future profitability in an environment of low interest rates.
That is a concern for central bankers in the region, the ECB’s top economist Peter Praet said in Madrid on Tuesday, because of a “rather strong correlation” between equity prices and banks’ lending.
“When equity prices are low, one year later, you may see impacts on the supply of credit of banks in general,” Mr. Praet said.
While this may be just the latest central bank trial balloon, the market is not taking any chances, and has sent the EURUSD surging above 1.12 while EURGBP spiked to a three year high following the report.
via http://ift.tt/2dH63tJ Tyler Durden