Curious why everything is being bought in the aftermath of last week’s ECB’s unprecedented announcement, and both bonds and stocks are either at or just shy of record highs ignoring completely the worst US nonfarm payroll print of 2014? JPM’s Nikolaos Panigirtzoglou explains why.
From “The ECB’s liquidity boost”, here first is the background on where in the global central bank central-planning experiment we stand right now:
The ECB President stated in this week’s press conference that the ECB’s forthcoming programs, i.e. TLTROs coupled with ABS and covered bond purchases, could take the ECB’s balance sheet back to early 2012 levels, i.e. to 3tr from 2tr currently. These remarks, not only suggest that the ECB might have a target in mind regarding the size of its balance sheet, but raise questions about the boost to global liquidity from prospective ECB actions. In aggregate, G4 central balance sheets started rising rapidly from the end of 2010 driven by the Fed’s QE2 followed by the BoE’s QE, ECB’s LTROs, Fed’s QE3 and BoJ’s QE. As a result of these central bank actions, G4 central bank balance sheets expanded by almost $4tr over 4 years i.e. by $1tr per year since the end of 2010 (Figure 1). With the ECB aiming at a 1tr expansion of its balance sheet, this $1tr per year pace in G4 central bank balance sheet expansion is likely to increase rather than decrease from here, despite the Fed’s tapering. The BoJ is already expanding its balance by close to $650bn per year, so adding a similar pace of increase for the ECB’s balance sheet (500bn or $650bn per year) should result in an annual pace of G4 central bank balance sheet expansion of $1.3tr, even as the Fed ceases bonds purchases.
This post was published at Zero Hedge on 09/07/2014 –.
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