Europe - ECB (May 08 - Dec 25)

[behappyalways]

ECB paralyzed by split as irreversible deflation trap draws closer
http://www.telegraph.co.uk/finance/econ ... loser.html

Geithner: To be sympathetic to them, the Germans’ experience has been every time they buy a little bit of calm and the Italian spreads start to come down, Berlusconi reneges on anything he committed to do. So they were just paranoid that every act of generosity was met by sort of a 'f**k you' from the establishment of the weaker countries in Europe, political establishment of those weaker countries in Europe, and so the Germans were just apoplectic

Finally, Mr Geither says flat out that Mario Draghi made up his “whatever it takes” line in July 2012 on the spur of the moment, without the backing of the European Central Bank’s executive council.

Geithner: Totally impromptu…. I went to see Draghi, and Draghi at that point, he had no plan. He had made this sort of naked statement of this stuff. But they stumbled into it.




Tim Geithner reveals in the raw how Europe's leaders tried to commit financial suicide
http://www.telegraph.co.uk/finance/econ ... icide.html

[behappyalways]

Both Die Zeit and Die Welt report that three members of the ECB’s six-strong executive board refused to sign off on Mr Draghi’s latest statement, an unprecedented mutiny in the sanctum sanctorum of the ECB’s policy making machinery.

The reality is that a full six months after Mr Draghi first talked loosely of a €1 trillion blitz to head off deflation risks, almost nothing has actually happened. The ECB balance sheet has shrunk by over €100bn.

The latest dispute was over a change in the wording of the ECB statement on its balance sheet. While it appears semantic and trivial – whether the €1 trillion boost is “expected” or “intended” – the underlying clash is serious.

Draghi's authority drains away as half ECB board joins mutiny
http://www.telegraph.co.uk/finance/comm ... utiny.html

Geithner: To be sympathetic to them, the Germans’ experience has been every time they buy a little bit of calm and the Italian spreads start to come down, Berlusconi reneges on anything he committed to do. So they were just paranoid that every act of generosity was met by sort of a 'f**k you' from the establishment of the weaker countries in Europe, political establishment of those weaker countries in Europe, and so the Germans were just apoplectic

Finally, Mr Geither says flat out that Mario Draghi made up his “whatever it takes” line in July 2012 on the spur of the moment, without the backing of the European Central Bank’s executive council.

Geithner: Totally impromptu…. I went to see Draghi, and Draghi at that point, he had no plan. He had made this sort of naked statement of this stuff. But they stumbled into it.




Tim Geithner reveals in the raw how Europe's leaders tried to commit financial suicide
http://www.telegraph.co.uk/finance/econ ... icide.html

[winston]

The ECB's measures – designed to stimulate the European economy – have proven to be ineffective.

It's difficult to entice investors into buying Spanish 10-year bonds at all-time lows of 1.88% or Italian 10-year bonds at 2.06%… considering neither government is exactly ideal.

So far, the ECB has only purchased around 18 billion euros' worth of bonds. Its goal is 1 trillion euros' worth.

At this rate, it will take the ECB more than five years to complete its purchases. If the ECB wants to stimulate Europe's economy, it will likely be forced to buy sovereign bonds and continue easing.

That's what ECB President Mario Draghi has been pushing for… But again, Germany is against the idea.

Jens Weidman, chief of German central bank Bundesbank, said that low interest rates don't work for Germany… and "easy money" policies reduce the incentive for governments to reform.

As a result, the ECB will wait until the first quarter of 2015 to decide whether to begin easing.

Source: Growth Stock Wire

[winston]

Eurozone Conflict Will Bring a Major Buying Opportunity

By PETER KRAUTH

Source: Money Morning

http://moneymorning.com/2014/12/16/euro ... dium=email

[winston]

Draghi Prepares to Act Against Risk of Deflation

http://www.bloomberg.com/news/2015-01-0 ... id=mostpop

[behappyalways]

ECB 'looking at three QE options'
http://www.telegraph.co.uk/finance/econ ... tions.html

[winston]

OMT

The advocate general of the European Court of Justice, Pedro Cruz Villalon, advised judges to approve the European Central Bank's so-called OMT programme - a stimulus measure initially launched in 2012 - on condition the ECB was not directly involved in an assistance program for countries that benefit.

Though a final ruling will not be made for several months, traders said an adverse or complicated recommendation would have given the ECB less room for maneuvre at its next policy meeting on January 22, when many expect the central bank to launch a full-scale quantitative easing program.

"My feeling is that this gives greater weight to [ECB president] Mario Draghi, and perhaps on January 22 he's going to come in with greater weight than expected," said Neil Mellor, a strategist at Bank of New York Mellon in London.

Source: REUTERS

[behappyalways]

Mario Draghi Reminds Germany He Serves All of Europe
http://www.bloomberg.com/video/mario-dr ... Xtkng.html

[winston]

Short-term gain likely from shock move

The biggest surprise last week was the Swiss National Bank's decision to cancel its cap on the Swiss franc versus the euro, which resulted in severe fluctuations in foreign exchange markets.

This week the European Central Bank may launch quantitative easing to stimulate the economy in the euro-zone area.

It is well known that the SNB was a big buyer of euro-zone government bonds. And during the past few years, the Swiss central bank spent a large proportion of its reserves investing in European government bonds to defend the lower limit of the euro.

According to data, at the end of the third quarter last year, 45 percent of the SNB's foreign exchange investment was in euro assets, of which 73 percent was government bonds. Now that the cap has disappeared, there is no need to buy the euro.

There will be less demand for euro-zone bonds because of the absence of this big buyer.

All of this will push the European Central Bank to implement QE, such as buying bonds, as soon as possible to help lessen the market's concerns about the euro zone's economic outlook.

At the same time, the SNB's action has resulted in the Swiss franc sharply rising not only against the euro, but also jumping 20 percent against the US dollar in one day.

The United States, meanwhile, has just released economic data that shows the retail sector's performance has not been great. This along with the decline in wages means the country may be heading for deflation.

This may result in the Federal Reserve holding back on raising interest rates and the dollar rally taking a rest which would halt outflows from the Asia-Pacific region.

All this will result in the short-term improved performance of European stock and commodity markets, and Asia-Pacific stock markets except Japan.

Source: Andrew Wong Wai-hong, The Standard HK

[winston]

Swiss to Mario Draghi: To QE or not to QE

The markets have had an array of abrupt reactions to the Swiss National Bank’s (SNB) move to stop supporting the Swiss Franc against the euro from buying Swiss bonds.

The euro has crashed further, stocks have taken minor hits and gold has broken to the upside (as we expected near term).

But the biggest impact is likely to be on Mario Draghi’s up-and coming decision to ignite another heavily telegraphed round of quantitative easing (QE) to the tune of $1.2 trillion plus.

But I’ll get back to that.

Few people realize that Switzerland, even more so than Japan, has been the most aggressive at QE and at expanding their central bank’s balance sheet by five times since January 2008.

Why would the normally conservative Swiss bank be so aggressive in stimulating and then reverse so sharply?

The Swiss like most European nations are big exporters, at 50% to 54% of GDP since 2006. A falling euro versus the Swiss franc, like in late 2007 when it was 1.67 euros to the franc, hurts export industries from watches to chocolates.

Hence, the Swiss have been pushing down the Swiss franc and bolstering the euro to peg at 1.20 to the franc, but at great expense, as Switzerland is David fighting Goliath. The chart below shows the euro versus both the Swiss franc and the U.S. dollar since 2007.

See Larger image

The euro peaked against the dollar in March of 2008 at 1.60. I remember that painfully as I was in Italy at the time paying top prices for everything. The euro has devalued 28% against the dollar since then. That would’ve killed Swiss exports if they hadn’t fought it.

But there is one big difference for the Swiss. Their largest industry is global banking and a falling currency means affluent depositors lose value… they don’t like that! By pegging it to the euro, those depositors are neutral but it also means that most depositors outside the euro lose value.

So, the Swiss couldn’t afford to single-handedly keep fighting the euro… and its banking sector needs to return to the safe haven status it’s always offered, especially now that it has had to give up much of its secrecy advantage.

The euro zone is heavily split over Draghi’s intention of strong QE. Germany and the other healthier northern countries — Austria, the Netherlands and Finland — are against another desperate round of QE.

Yes, that would benefit their exports, but they are doing well enough to value the long-term over the short-term benefits of desperately taking more financial drugs.

The Mediterranean countries are all flagging — France, Italy, Spain, Greece and Portugal. They desperately need escalating QE to keep their bond rates low (with the strongest rising deficits) and to continue to stimulate their exports and trade imbalances.

Here’s what is so important about the sudden Swiss move: the SNB just pre-empted Draghi.

The euro is falling without further QE as a Swiss withdrawal of that move is like an increase in stimulus for the euro. If Draghi adds insult to injury with a big jolt, the euro could be at parity in short order to the U.S. dollar.

Given that there is already a big rift over such QE, it makes it harder for Draghi to follow through — at all, or as strongly, as he has telegraphed.

Anyone that doesn’t think that European and global stock markets will tank if Draghi does not follow through is nuts.

The markets know that they can’t keep going up without continued QE. The U.S. is on hold for now, Japan is off the reservation on the excessive side. The ECB is the only major region that can keep upping the ante here.

The U.S. is the only market holding fast to the delusion that we’re at escape velocity and more QE is not needed. That will change in 2015 when our economy unexpectedly slows due to demographic trends, as will Germany’s and many others in Europe.

Germany has been leading the protest against the new surge in QE. A court just approved more QE and defined it as legal, so Draghi won that round.

But what if Germany is successful in blocking QE or keeping it minimal?

This decision is due around March, just when we have the strongest potential turning point in this year’s cycles.

A balk on European Central Bank’s QE and continued falling oil prices are likely to be the two triggers for the next global stock crash… and they are, of course, intertwined.

Source: Economy & Markets