ECB signalling an end to QE?

The European Central Bank (ECB) released their latest policy outlook last night and it set a fire under the Euro as the language within had gotten decidely more bullish.

From Bloomberg:

In the account of its December meeting, the Governing Council said there was a “widely shared” view among officials that communication would need to evolve gradually based on the outlook for growth and inflation. But the language on the monetary-policy stance could be revisited early this year.

The yields on German bonds also increased, with the two-year yield gaining 4 basis points to minus 0.57 percent.

“The big picture is that any shift in communication, whether it happens in March or June or if it’s gradual or hawkish, now seems to be backed by the majority of the Governing Council, which didn’t seem to be the case in October,” said Frederik Ducrozet, an economist at Banque Pictet & Cie in Geneva, adding that QE may end even if underlying price pressures only improve slightly.

“This could have some very concrete policy implications.”

This has been the second shift in 2018 by central banks, following the BOJs more accomodative stance on its bond buying program earlier in the week.

Are we beginning to see more signs of normalcy as the Fed leads the charge in the interest rate race?

Barclays reckons the ECB will take the foot of the QE stimulus pedal this year, including a potential rate rise. From Forexlive:

  • However, given the ongoing acceleration in the pace of economic expansion and the slow improvement in the inflation outlook, there is also a broad agreement that the forward guidance will have to be adjusted gradually; accordingly we expect a first step in this direction at the April or June meeting.
  • We maintain our call that the ECB will likely end QE before year-end, possibly as early as September, and proceed with a first depo rate increase by 20bp in Q4.·

The ECB views “strength” and inflation in the underlying economy through the nexus that is the German economy and inflation. Last night saw the most recent estimates of growth of the German economy revised upwardly with a 0.5% rate through 4Q 2017, but inflation remains modest:

The ECB reckons that EZ-wide CPI will only get to about 1.7% or so through to 2020, still well under the much-lofted goal of all central banks of 2%.

A stronger Euro may not be what the ECB wants as it heads back to multi year highs, helping deflate producer price pressures. Risk traders on the continent are also wary of the central bank lifting the gas pedal that has supported stock prices for so long.


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  1. QE is trickle down economics.

    Helicopter money is what they should have done instead.

    HM = flying a helicopter full of banknotes and dropping the cargo onto the poorest suburbs.

    • +1 coz ALL of it would get spent immediately into the real economy AND make peoples lives better (even if it spend to booze ind ciggies).

      • Helicopter money is a form of UBI but foreigners would get banknotes in their backyard too.

        Delhi has UBI – each house gets 20,000 L of free water per month and the residents get free healthcare:

        Even in Australia I do not get free pills!

    • Jacob, we will probably get helicopter money at some point but it will happen when a crisis has taken hold and policy-makers start realising they have run out of options. The issue with heli-money is that it is inherently inflationary …. once the inflation genie is out of the bottle, it could be the end for the fiat money system — and if (when) that happens, it’s game over for the welfare system and ‘Big Govt’.

      At that point all those who called for helicopter money may well regret what they asked for. Just throwing it out there ..

      (Please don’t take that comment as implicit support for QE — that’s a rank disaster, despite cheerleading from the mainstream)

    • The problem is political – fiscal policy approaches are out of fashion, so we’re going to be trapped in the death spiral for a while….. all the while inequality will continue to go bananas

  2. Also keep an eye out for November 2019, the end of Draghi’s reign. Expect the Northern States to make a push for (demand) the position. Germany has missed out on many appointments and Brexit spoils recently due to the state of their internal politics.

    I reckon it only gives them an excuse to bargain hard for the biggest price of all at the moment: ECB Presidency. A German President would almost certainly seek to normalise asap.

    I would totally agree btw. The Dutch housing market has gone completely bonkers and is almost mimicking the Australian one now, at least judging by the outright panic and tone of news items being hurled around about shortages, ever rising prices, etc.

    • ErmingtonPlumbingMEMBER

      “The Dutch housing market has gone completely bonkers and is almost mimicking the Australian one now, at least judging by the outright panic and tone of news items being hurled around about shortages, ever rising prices, etc”

      What if Immigration gets cut there,…and here?

      • Immigration can’t get cut there (unless they leave the EU).

        So – go long Dutch property! (those guys invented bubbles, they wouldn’t let one happen again… right?!)

  3. Amsterdam property going crazy because of Brexit…..Banks, Medical corporations Retailers headquarters etc moving there…its not because of anything else, thats why the rallie, housing has always been limited and this has put enormous pressure on the housing supply. If it wasn’t for the companies deciding to move thousands of their high paid staff there then the increase would not have happened…cheap housing compared to London…the move is justified.

  4. May i add……Unlike like Australia…where it is unjustified…loads of people owning 3+ houses on leveraged money and having the gual to say there is a shortage of supply….unsustainable in this new era of tightening of money supply… .