• Tag Archives QE
  • Deutsche Bank: “The Fed’s ‘Transparency’ Killed Long-Term Investing”

    Two weeks ago, one of our favorite derivatives strategists, BofA Barnaby Martin wrote something we have said for years: “QE has been the most effective way for CBs to ‘sell vol’”, arguing that accommodative monetary policies across the globe amid QE have “clearly supported a strong rebound in fixed income markets.” This should not be a surprise: as Martin calculated, there is now some $51 trillion at risk should rates vol spike, not to mention countless housing bubbles that have been created since the financial crisis where the bulk of middle class wealth has been parked, which in turn have trapped central banks, preventing them from undoing nearly a decade of unprecedented monetary largesse that has pumped over $15 trillion in central bank liquidity.

    The BofA strategist showed that every time the Fed embarked on the different phases of its QE program, credit implied vols declined significantly, while during periods of no monetary easing or when the market started pricing the possibility of easing policy removal (tapering tantrum and the subsequent tapering phase) implied vols advanced.

    This post was published at Zero Hedge on Sep 23, 2017.


  • Week in Review: September 23, 2017

    Almost a decade later, the Federal Reserve this week announced it will begin reversing quantitative easing. Slowly. Very slowly. The balance sheet currently stands at $4.5 trillion and they will begin allowing $10 billion in assets to roll off their sheets next month. Given the unprecedented nature of QE, even this modest reduction has many market observers on edge. Of course, the fallout from the Fed’s actions are still being felt, while the Trump Treasury is making threats that it would have disastrous consequences if acted on.

    This post was published at Ludwig von Mises Institute on September 23, 2017.


  • Fed QT Stocks, Gold Impact

    This week’s landmark Federal Open Market Committee decision to launch quantitative tightening is one of the most-important and most-consequential actions in the Federal Reserve’s entire 104-year history. QT changes everything for world financial markets levitated by years of quantitative easing. The advent of the QT era has enormous implications for stock markets and gold that all investors need to understand.
    This week’s FOMC decision to birth QT in early October certainly wasn’t a surprise. To the Fed’s credit, this unprecedented paradigm shift had been well-telegraphed. Back at its mid-June meeting, the FOMC warned ‘The Committee currently expects to begin implementing a balance sheet normalization program this year’. Its usual FOMC statement was accompanied by an addendum explaining how QT would likely unfold.
    That mid-June trial balloon didn’t tank stock markets, so this week the FOMC decided to implement it with no changes. The FOMC’s new statement from Wednesday declared, ‘In October, the Committee will initiate the balance sheet normalization program described in the June 2017 Addendum to the Committee’s Policy Normalization Principles and Plans.’ And thus the long-feared QT era is now upon us.
    The Fed is well aware of how extraordinarily risky quantitative tightening is for QE-inflated stock markets, so it is starting slow. QT is necessary to unwind the vast quantities of bonds purchased since late 2008 via QE. Back in October 2008, the US stock markets experienced their first panic in 101 years. Ironically it was that earlier 1907 panic that led to the Federal Reserve’s creation in 1913 to help prevent future panics.
    Technically a stock panic is a 20%+ stock-market plunge within two weeks. The flagship S&P 500 stock index plummeted 25.9% in just 10 trading days leading into early October 2008, which was certainly a panic-grade plunge! The extreme fear generated by that rare anomaly led the Fed itself to panic, fearing a new depression driven by the wealth effect. When stocks plummet, people get scared and slash their spending.

    This post was published at ZEAL LLC on September 22, 2017.


  • Bill Blain: “Let’s Pretend”

    Blain’s Morning Porridge – Fed Acts, ECB Smoking – but what?
    The Fed acts. Normalisation. Hints of a rate rise in December, confirmation of further ‘data-dependent’ hikes to come next year, and ending the reinvestment of QE income. Exactly as expected – although some say three hikes in 2018 is a bit hostage to the global economy. The effect: Dollar up. Bonds down. Record Stocks. Yellen threw the bond market a crumb when she reminded us low inflation will require a ‘response.’
    Relax. US markets will sweat, but not break. Dollar ascendant.. Yen collapses.. What about Yoorp?
    Not quite as simples in Europe.
    I’m indebted to my colleague Kevin Humphreys on BGC’s Money Market desk for pointing out yet another Northern European central banker with a smug self-satisfied smile on his face this morning.
    Klass Knot (Holland) has been telling us the European reflationary environment is improving to the extent where the tail risk of a deflationary spiral is no longer imminent. He said ‘robust’ economic developments have improved confidence inflation will rise in line with the ECB’s mandated aims. He added the appreciation of the Euro reflects an improving assessment of the EU’s economic success. And, he concludes the ECB should focus on the more important structural and institutional issues facing Europe, rather than the short-term stabilisation and crisis management – WHICH ARE NO LONGER REQUIRED.

    This post was published at Zero Hedge on Sep 21, 2017.


  • Traders Yawn After Fed’s “Great Unwind”

    One day after the much anticipated Fed announcement in which Yellen unveiled the “Great Unwinding” of a decade of aggressive stimulus, it has been a mostly quiet session as the Fed’s intentions had been widely telegraphed (besides the December rate hike which now appears assured), despite a spate of other central bank announcements, most notably out of Japan and Norway, both of which kept policy unchanged as expected.
    ‘Yesterday was a momentous day – the beginning of the end of QE,’ Bhanu Baweja a cross-asset strategist at UBS, told Bloomberg TV. ‘The market for the first time is now moving closer to the dots as opposed to the dots moving towards the market. There’s more to come on that front. ‘
    Despite the excitement, S&P futures are unchanged, holding near all-time high as European and Asian shares rise in volumeless, rangebound trade, and oil retreated while the dollar edged marginally lower through the European session after yesterday’s Fed-inspired rally which sent the the dollar to a two-month high versus the yen on Thursday and sent bonds and commodities lower. Along with dollar bulls, European bank stocks cheered the coming higher interest rates which should help their profits, rising over 1.5% as a weaker euro helped the STOXX 600. Shorter-term, 2-year U. S. government bond yields steadied after hitting their highest in nine years.
    ‘Initial reaction is fairly straightforward,’ said Saxo Bank head of FX strategy John Hardy. ‘They (the Fed) still kept the December hike (signal) in there and the market is being reluctantly tugged in the direction of having to price that in.’
    The key central bank event overnight was the BoJ, which kept its monetary policy unchanged as expected with NIRP maintained at -0.10% and the 10yr yield target at around 0%. The BoJ stated that the decision on yield curve control was made by 8-1 decision in which known reflationist Kataoka dissented as he viewed that it was insufficient to meeting inflation goal by around fiscal 2019, although surprisingly he did not propose a preferred regime. BOJ head Kuroda spoke after the BoJ announcement, sticking to his usual rhetoric: he stated that the bank will not move away from its 2% inflation target although the BOJ “still have a distance to 2% price targe” and aded that buying equity ETFs was key to hitting the bank’s inflation target, resulting in some marginal weakness in JPY as he spoke, leaving USD/JPY to break past FOMC highs, and print fresh session highs through 112.70, the highest in two months, although it has since pared some losses.

    This post was published at Zero Hedge on Sep 21, 2017.


  • Questions Remain as the Fed Finally Begins to Reverse QE

    Today the Federal Reserve announced that it will finally begin the process of reversing quantitative easing. Following the process it outlined earlier this year, the Fed will start allowing assets (Treasurys and mortgage-backed securities) to mature off its balance sheet, rather than re-investing them as had been its prior policy. The current plan is to start with a $10 billion roll off in October, and increasing quarterly until it reaches $50 billion by October of next year. Considering the Fed’s balance sheet currently stands $4.5 trillion, the Fed is envisioning a slow, multi-year process. As Philadelphia Fed president Patrick Harker described it earlier this year, the goal is for it to be ‘the policy equivalent of watching paint dry.’
    Of course the old saying about the ‘best laid plans of mice and men’ also applies to central planners, and as Janet Yellen once again noted today, ‘policy is not on a pre-set course.’ Should markets react negatively, as they did when Bernanke hinted at reducing their purchases in 2013, the markets have reason to expect the Fed to act. In fact, when asked, Yellen kept the door open to both lowering interest rates and stalling its roll off should market conditions worsen. In fact, it appears that markets are already betting on the Fed to not follow through on its projected December rate hike.
    As the Fed has been signaling for months now that a taper was in the works, the mainstream narrative suggests that tapering has been priced in (though stocks dropped on the news.) There are still major questions left unanswered.

    This post was published at Ludwig von Mises Institute on September 21, 2017.


  • This Fed is on a Mission

    QE Unwind starts Oct. 1. Rate hike in Dec. Low inflation, no problem. The two-day meeting of the FOMC ended on Wednesday with a momentous announcement that has been telegraphed for months: the QE unwind begins October 1. It marks the end of an era.
    The unwind will proceed at the pace and via the mechanisms announced at its June 14 meeting. The purpose is to shrink its balance sheet and undo what QE has done, thus reversing the purpose of QE.
    Countless people, worried about their portfolios and real estate investments, have stated with relentless persistence that the Fed would never unwind QE – that it in fact cannot afford to unwind QE.
    The vote was unanimous. Even no-rate-hike-ever and cannot-spot-housing-bubbles Neel Kashkari voted for it.
    The Fed also telegraphed that it could raise its target range for the federal funds rate a third time this year, from the current range of 1.0% to 1.25%. There is only one policy meeting with a press conference left this year: December 13, when the two-day meeting ends, remains the top candidate for the next rate hike.
    This has been the routine since the rate hike last December: The FOMC decides to change its monetary policy at every meeting with a press conference: December, March, June, today, and December.

    This post was published at Wolf Street by Wolf Richter ‘ Sep 20, 2017.


  • Federal Reserve Will Continue Cutting Economic Life Support

    I remember back in mid-2013 when the Federal Reserve fielded the notion of a “taper” of quantitative easing measures. More specifically, I remember the response of mainstream economic analysts as well as the alternative economic community. I argued fervently in multiple articles that the Fed would indeed follow through with the taper, and that it made perfect sense for them to do so given that the mission of the central bank is not to protect the U. S. financial system, but to sabotage it carefully and deliberately. The general consensus was that a taper of QE was impossible and that the Fed would “never dare.” Not long after, the Fed launched its taper program.
    Two years later, in 2015, I argued once again that the Fed would begin raising interest rates even though multiple mainstream and alternative sources believed that this was also impossible. Without low interest rates, stock buybacks would slowly but surely die out, and the last pillar holding together equities and the general economy (besides blind faith) would be removed. The idea that the Fed would knowingly take such an action seemed to be against their “best self interest;” and yet, not long after, they initiated the beginning of the end for artificially low interest rates.
    The process that the Federal Reserve has undertaken has been a long and arduous one cloaked in disinformation. It is a process of dismantlement. Through unprecedented stimulus measures, the central bank has conjured perhaps the largest stock and bond bubbles in history, not to mention a bubble to end all bubbles in the U. S. dollar.

    This post was published at Alt-Market on Wednesday, 20 September 2017.


  • Euro Tumbles On Report ECB Is “Concerned And Divided” Over End To QE

    Talk ’em up, then slam ’em down.
    The familiar pattern of “clear and transparent” central bank communication was on full display moments ago, when following months of build up to an ECB taper announcement, the ECB used its favorite mouthpiece, Reuters, to “trial balloon” that an ECB decision over whether to announce a firm end-date to the central bank’s bond buying could be “put off until December” as a result of disagreement among the ECB council stemming from “concern over Euro strength” which is leading to “uncertainty and divide within the council.”
    As a result, some within the ECB want to be able to “extend or expand” buys if needed, in other words if the EURUSD rises too far above 1.20.
    The highlights from Reuters:
    CONCERN OVER EURO STRENGTH IS LEADING TO UNCERTAINTY AND DIVIDE WITHIN ECB COUNCIL – SOURCES ECB POLICYMAKERS DISAGREE ON WHETHER TO SET FIRM END-DATE FOR BOND-BUYING PROGRAMME IN OCT – SOURCES SOME ECB RATE SETTERS WANT TO BE ABLE TO EXTEND OR EXPAND BUYS IF NEEDED – SOURCES SOME ELEMENTS OF ECB DECISION COULD BE PUT OFF UNTIL DEC – SOURCES And the full report:

    This post was published at Zero Hedge on Sep 19, 2017.


  • Bill Blain: “One Fund I Met Is Convinced Bond Markets Are On The Edge Of A Precipice”

    Blain’s Morning Porridge – September 19th 2017
    ‘I had to phone someone so I picked on you. Hey, that far out so you heard him too..’
    There is a veritable hurricane of new issues hitting the market. Like the new Ukraine deal they are being priced to sell – perhaps racing to get down before the rains come. There is the sure and certain knowledge this feeding frenzy is going to stop. With a thumping great crunch.
    But the new issue bond market is always feast/famine. There is bigger stuff happening. I managed to spend some time yesterday in the West End of London, speaking with a number of clients about where they think markets are going. Three big themes emerged:
    Much of the current ‘noise’ is utter distraction – including what’s really going on in Washington, the nuances of the Brexit negotiations, Korea and all the other political rumour and sigh hitting markets. Some of stories emanating from Whitehall, Brussels, Berlin and Washington are tremendous – I’d love to share them, but… Strip out the political flummery and noise, and the prospects for global stock markets should be positive. Every major economy that matters is now in positive growth, after 10-years we finally seem to have shaken off the Global Financial Crisis, and stock markets (which high) are not impossibly overvalued. The reflation trade is on. The fly in the ointment is the bond market. One fund I met is convinced Global bond markets and credit are on the edge of precipice and about to take that terminal step forward. Others fear the unintended consequences of taper and the ‘End of QE’ triggering a reset across global financial asset values – especially across the bond markets.

    This post was published at Zero Hedge on Sep 19, 2017.


  • Why Is The BIS Flooding The System With Gold?

    A consultant to GATA (Gold Anti-Trust Action Committee) brought to our attention the fact that gold swaps at the BIS have soared from zero in March 2016 to almost 500 tonnes by August 2017 (GATA – BIS Gold Swaps). The outstanding balance is now higher than it was in 2011, leading up to the violent systematically manipulated take-down of the gold price starting in September 2011 (silver was attacked starting in April 2011).
    The report stimulated my curiosity because most bloggers reference the BIS or articles about the BIS gold market activity without actually perusing through BIS financial statements and the accompanying footnotes. Gold swaps work similarly to Fed report transactions. When banks need cash liquidity, the Fed extends short term loans to the banks and receives Treasuries as collateral. QE can be seen as a multi-trillion dollar Permanent Repo operation that involved outright money printing.
    Similarly, if the bullion banks (HSBC, JP Morgan, Citigroup, Barclays, etc) need access to a supply of gold, the BIS will ‘swap’ gold for cash. This would involve BIS or BIS Central Bank member gold which is loaned out to the banks and the banks deposit cash as collateral to against the gold ‘loan.’ This operation is benignly called a ‘gold swap.’ The purpose would be to alleviate a short term scarcity of gold in London and put gold into the hands of the bullion banks that can be delivered into the eastern hemisphere countries who are importing large quantities of gold (gold swaps outstanding are referenced beginning in 2010).

    This post was published at Investment Research Dynamics on September 18, 2017.


  • Yesterday, All My Market Troubles Seemed So Far Away…

    We’re finally here. About 9 years after QE1 began, QT is about to start. If one believes that the stock market still is a discounting mechanism, then have nothing to fear with QT and that maybe it will actually be like ‘watching paint dry’ as Fed members so desperately want it to be. After all, the S&P 500 is at an all-time high. If you think, like me, that the stock market is not the same discounting tool as it once was because of the major distortion and manipulation of markets via central market involvement and the dominance of machines that are reactive instead of proactive in response to news, then we must review again the previous experiences when major Fed changes took place. After all, they were all well telegraphed as this week’s likely news has been.
    Before I get to that, let me remind everyone that the 3rd mandate of QE was higher stock prices. Ben Bernanke in rationalizing the initiation of QE2 in a Washington Post editorial back in November 2010 said in regards to QE1 and the verbal preparation for QE2: ‘this approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action.’ He then went on to say ‘higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.’ Yes, the belief in the wealth effect which hasn’t worked in this expansion. Hence, the record high in stocks last week and the 2.9% y/o/y rise in core August retail sales, both below the 5-year average and well less than the average seen in the prior two expansions.

    This post was published at FinancialSense on 09/18/2017.


  • Deutsche Bank: “This Is The $2.5 Trillion Question”

    Next Wednesday, the Fed is widely expected to officially launch its balance sheet reduction or “normalization” process, as a result of which it will gradually taper the amount of bonds its reinvests in the process modestly shrinking the Fed’s balance sheet.
    Very modestly. As shown in the chart below, the Fed’s $4.471 trillion balance sheet will shrink by $10 billion per month in October and November, or about 0.4% of its total AUM. Putting this “shrinkage” in context, over the same time period, the Bank of Japan and the ECB will continue adding new liquidity amounting to more than $400 billion. As a result, in Q4 net global liquidity will increase by “only” $355 billion, should Yellen begin “normalizing” in October following a September taper announcement as expected.

    That much is known, however there are quite a few unknown aspects about the Fed’s upcoming QE unwind, and as a result, Deutsche Bank writes that “the Fed is about to become hugely important for financial assets.”
    Assuming it all goes well, DB forecasts smooth sailing ahead, manifested by “nominal core rates will be relatively stable and the dollar gently weaker. 10s might trade a sustainably lower range 1.8-2.3 percent. There will be more of a gradual risk asset rotation favoring US (growth) equities, EM, some commodities at the expense of (value) equities, Eurostoxx, NKY with credit somewhere in between.”

    This post was published at Zero Hedge on Sep 16, 2017.


  • Yesterday’s “Watershed” Central Bank Announcement Which Everybody Missed

    In what may have been a watershed moment in monetary policy – which awkwardly was missed by almost everyone as a result of the concurrent launch of the latest North Korean ballistic missile which immediately drowned out all other newsflow – late on Thursday, the Bank of Canada held a conference on inflation targeting and monetary policy titled “Bank of Canada Workshop ‘Monetary Policy Framework Issues: Toward the 2021 Inflation-Target Renewal” in which, in a stunning shift of monetary orthodoxy, BoC Senior Deputy Governor Carolyn A. Wilkins said that Canada was open to changes in the BoC mandate.
    WILKINS: OPEN TO LOOKING AT `SENSIBLE’ ALTERNATIVES TO MANDATE Or in other words, lowering or outright abolishing the central bank’s inflation target, or explicitly targeting financial conditions and asset prices.
    While still early in the process, the BOC may be setting a precedent, one which other DM central banks may have no choice but to follow: If the Bank of Canada is going to look at alternatives to their mandate (with an emphasis on inflation), it – as several trading desks have suggested – could become the first central bank to officially change its mandate to reflect financial conditions that are too loose in the context of the current low r-star lowflation environment.
    In practical terms, this would mean that instead of seeking chronically easier conditions to hit legacy inflation targets around ~2.0% while inflating ever greater asset bubbles, one or more central banks could simply say that 1.5% (or less) is sufficient for CPI and call it a day, in the process soaking up record easy financial conditions and bursting countless asset bubbles. In the context of a “new supply paradigm” in retail (where even FOMC members now blame Amazon for lack of inflation) and energy (same but with OPEC) which appears to be gaining traction within central banks, as well as frustration with distortion in asset markets, It would make much sense for the Fed to lower the inflation target to 1.5%, declare victory, and normalize policy.
    Why? Because as several banks noted after the BoC conference, we know that central banks world-wide are concerned about the size of their balance sheets and associated dysfunctionality in government and other bond markets, and the ever-increasing risks from the ultimate unwind as the QE programs continue to grow in a war against inflation where the victory looks increasingly Pyrrhic. Furthermore, negative rates have caused money markets to become dysfunctional and less efficient, which could be a structural issue “if the temporary was allowed to become permanent.”

    This post was published at Zero Hedge on Sep 15, 2017.


  • BofA: $2 Trillion YTD In Central Bank Liquidity Is Why Stocks Are At Record Highs

    One week ago, in his weekly “flow report“, BofA’s Michael Hartnett looked at the “Disconnect Myth” between rising stocks and sliding yields and succinctly said that there is “no disconnect between stocks & bonds.”

    Why? The reason for low yields and high stocks was simple: trillions in central bank intervention. The result is an era of lower yields & higher stocks, or as the chart above shows, an era in which the alligator jaws of death are just waiting for their moment to shine. Here are the three phases:
    1981-2009 (disinflation/Fed put), 10-year Treasury yields down from 15.8% to 3.9% = 10.7% annualized S&P 500 returns; 2009-2016 (Fed QE/global ZIRP) yields down from 3.9% to 2.4% = 14.9% SPX ann. return; 2017 YTD (ECB/BoJ QE) yield down to 2%, SPX annualizing 17.5%. Fast forward to today, when in the interim period stocks have continued to rise, hitting new all time highs in both the US and globally, oblivious of any news and fundamental developments – as one would expect from a massive asset price bubble, and in line with what Hartnett has dubbed a Liquidity Supernova.

    This post was published at Zero Hedge on Sep 15, 2017.


  • Bill Blain Crawls Back Into His Pit: “There Is Apparently Nothing To Worry About”

    What do we know different this morning?
    There is apparently nothing to worry about. Everything is coming up roses. These are not the droids you are looking for – says my market guru Steve Previs. All the old market bears, like me, are looking for stuff to grumble about – terrified by the unintended consequences of QE, caught in the headlights of apparently overbought markets, of whatever else panics them… etc.
    But what do we know?
    We know nothing – the markets continue to make new highs supported by a blaze of good news and positive expectations. The disappointing China data and threat of poor US data is momentary… apparently.. But, but and but again… mood and sentiment can change on a dime…

    This post was published at Zero Hedge on Sep 14, 2017.


  • GOLD HAS BROKEN OUT – DON’T BE LEFT BEHIND

    The coming gold and silver moves in the next few months will really surprise most investors as market volatility increases substantially.
    It seems right now that ‘All (is) quiet on the Western Front’ as Erich-Maria Remarque wrote about WWI. Ten years after the Great Financial Crisis started and nine years after the Lehman collapse, it seems that the world is in better shape than ever. Stocks are at historical highs, interest rates at historical lows, house prices are booming again and consumers are buying more than ever.
    HAVE CENTRAL BANKS SAVED THE WORLD?
    So why were we so worried in 2007? There is no problem big enough that our friendly Central Bankers can’t solve. All you need to do to fool the world is to: Print and expand credit by $100 trillion, fabricate derivatives for another few $100 trillion, make further commitments to the people in forms of pensions and medical, social care for amounts that can never be paid and lower interest rates to zero or negative.
    And there we have it. This is the New Normal. The Central Banks have successfully applied all the Keynesian tools. How can everything work so well with just more debt and liabilities? Well, because things are different today. We have all the sophisticated tools, computers, complex models, making fake money QE, interest rate manipulation management and very devious intelligent central bankers.
    Or is it different this time?

    This post was published at GoldSwitzerland on September 7, 2017.


  • Central Banks Have Purchased $2 Trillion In Assets In 2017

    In his latest “flow report”, BofA’s Michael Hartnett looks at the “Disconnect Myth” between rising stocks and bonds and summarizes succinctly that there is “no disconnect between stocks & bonds.”
    Why? The best, and simplest, explanation for low yields & high stocks is simple: so far in 2017 there has been $1.96 trillion of central bank purchases of financial assets in 2017 alone, as central bank balance sheets have grown by $11.26 trillion since Lehman to $15.6 trillion. Hartnett concedes that the second best explanation is bonds pricing in low CPI (increasingly a new structurally low level of inflation due to tech disruption of labor force) while equities price in high EPS (with little on horizon to meaningfully reverse trend), although there is no reason why the second can’t flow from the first.
    The result is an era of lower yields & higher stocks, or as the chart below shows, an era in which the alligator jaws of death are just waiting for their moment to shine. Here are the three phases:
    1981-2009 (disinflation/Fed put), 10-year Treasury yields down from 15.8% to 3.9% = 10.7% annualized S&P 500 returns; 2009-2016 (Fed QE/global ZIRP) yields down from 3.9% to 2.4% = 14.9% SPX ann. return; 2017 YTD (ECB/BoJ QE) yield down to 2%, SPX annualizing 17.5%.

    This post was published at Zero Hedge on Sep 8, 2017.


  • Draghi’s 4 QE Scenarios Unveiled As ECB’s Reuters “Trial Balloon” Strikes Again

    In our concluding comments on the ECB’s disjointed message yesterday, in which Draghi feebly tried to talk down the EUR while talking up the European economy and also hinting at the start of policy normalization but without actually doing so in the process sending the EUR shooting higher, we said “And now that the market is supremely confused, we expect the ECB to lob the next Reuters trial balloon any moment to punish all those who keep buying the EUR.”
    Less than one day later, this is precisely what happened because just before 5am ET on Friday, the ECB’s “sources” struck again through, guess whom Reuters which reported that contrary to Draghi’s responses during yesterday’s Q&A, the European central bank had discussed four QE scenarios in detail and agreed that the next step is to cut stimulus, to wit:
    ECB POLICY-MAKERS DISCUSSED 4 QE SCENARIOS ON THURSDAY AGREED NEXT STEP IS TO CUT STIMULUS & SHOULD BE DONE WITH BROADEST POSSIBLE CONSENSUS ECB QE OPTIONS INCLUDED BUYS AT 40 BILLION EUROS OR 20 BILLION A MONTH; EXTENSION OPTIONS INCLUDE 6 MONTHS OR 9 MONTHS – SOURCES Ironically, however, the Reuters “post-script” ended up confirming what the EUR bulls knew all too well: the ECB has no choice but to taper QE, and soon, in the process pushing the EUR even higher.
    As the ECB’s favorite FX trading news service Reuters details further, “ECB policymakers meeting on Thursday were in broad agreement that their next step will be reducing their bond purchases and discussed four options, two sources with direct knowledge of the discussion said. Possibilities discussed by the ECB included – but are not limited to – cutting assets buys to 40 billion euros a month or 20 billion euros, with extension options including 6 months or 9 months.”

    This post was published at Zero Hedge on Sep 8, 2017.