ECB quantitative easing: Question everything

first_imgAmazingly, it has taken us more than four years to get here. Perhaps even more amazingly, the QE has arrived long after the apparent crisis point for the euro-zone has passed – the hair-raising weeks of 2012 when Greece looked to be on its way out of the single currency and peripheral bond yields were rocketing skywards. Today, Spain’s 10-year bonds barely yield 1.5%, and the euro has weakened enough to generate a healthy current account balance.The ultimate and most politically controversial of emergency monetary measures comes not in response to impending crisis but in pursuit of the central bank’s core mandate of price stability. Some have said today’s decision is the logical conclusion of current president Mario Draghi’s promise, at the height of the crisis, to do “whatever it takes” to preserve the single currency’s integrity. But, in fact, it is simply the logical and possibly the only way the ECB can pursue its core mandate as deflation takes hold and its interest rates bump up against the zero bound. (While the Swiss National Bank has recently shown a possible way forward into the strange world of deeply negative rates, it is notable the ECB kept all of its rates unchanged today).Does deflation represent a threat to the integrity of the single currency? Given the indebtedness of some members, it certainly could, if left to fester, Japan-like, for a long time. Does the market anticipate such an outcome? Looking at the way it has been pricing things over recent weeks, one would have to conclude that it does.Not only have bond yields and inflation breakevens been plummeting – while the oil price has halved, gold has been getting a bid for the first time in ages, which suggests investors have started thinking about it as a currency without a counterparty again, rather than just another commodity, and are no longer turned off by the thought of holding an asset that generates zero income.This is why the way markets responded to today’s news is so important. The central bank came out with a slightly stronger package than expected, and all of the pro-QE plays that had been selling-off over the last couple of days caught a bid: yields were back down, slightly, and the euro sold off modestly. Gold headed back through $1,300/oz. It was looking like we would get a classic case of buying the rumour and selling the news – which, by the way, is precisely what we saw around the QE decisions from the Bank of England and the US Federal Reserve. That would have been a comforting sign that a lot of the positioning taken up over the past month or so has been technically rather than fundamentally driven: speculators on the margins making sure they caught the up-draught into the increasingly inevitable ECB QE decision, rather than hunkering down for a long haul of falling consumer prices and stagnating growth.Should we revisit that thesis in the light of today’s moves? Not necessarily. The modestness of those moves suggests they are not reflective of market disappointment but rather of appreciation that the central bank really is serious this time. The open-ended nature of the programme Draghi described in the press conference was notable, for example. The response of stock markets back this interpretation up.It’s early days, but if this more optimistic take on things sticks over the next days and weeks, we could be seeing the beginnings of what could be a powerful bull market in European risk assets – but perhaps not the long-overdue and much-needed correction in safe-haven rates. IPE’s Martin Steward analyses today’s long-awaited European Central Bank announcement“We are not running money printing presses,” said the president of the ECB.That was in the early summer of 2010, the man in charge was Jean-Claude Trichet, and he was reassuring French radio listeners that the recent decision to begin sterilised secondary-market purchases of private and government bonds was not the prelude to US and UK-style QE. He needed to do so because the central bank was running desperately low on credibility. Days earlier, Trichet had insisted this big step had not even been discussed; and the ECB had previously broken its promise that “no state can expect special treatment” on collateral eligibility requirements in order to try and get on top of the worsening Greek debt crisis.In my opinion column for IPE at the time, I made the fairly unsophisticated argument that the losses of the financial crisis were in the process of being socialised through the ECB, and that this would happen either through defaults on debts that were now held at the ECB, or through the soft default of “runaway inflation” as the euro was trashed with a massive programme of all-out QE.last_img read more

Barcelona 3-0 Man United: Messi stars as Man United are knocked out

first_img Source: BBC Manchester United’s Champions League run ended in the quarter-finals as Lionel Messi inspired Barcelona to a crushing victory in the second leg at the Nou Camp.United, trailing 1-0 from the first leg, started brightly but were then undone by brilliance from Messi and a glaring mistake from goalkeeper David de Gea.Messi put the hosts ahead with a fine curling effort from 20 yards in the 16th minute and four minutes later De Gea let a weaker shot from the edge of the area squirm under his body for the Argentine’s second.Philippe Coutinho added a third for Barca in the 61st minute, curling a stunning effort into the top corner from distance.United hit the bar inside the first 40 seconds through Marcus Rashford but were dominated after going behind.Alexis Sanchez’s diving header, which was spectacularly saved by Barca goalkeeper Marc Andre ter Stegen in the 90th minute, was as close as the visitors came in the second half.It was a sobering night for United manager Ole Gunnar Solskjaer on the ground where he scored his most famous goal, the stoppage-time winner in the 1999 Champions League final.Barca now meet either Liverpool or Porto in the semi-final, with the Reds taking a 2-0 lead into Wednesday’s second leg.Mistakes costly but United outclassedUnited were always facing a difficult task as they attempted to overturn a first-leg deficit for the second round in a row.Just like in the last 16, when they stunned Paris St-Germain at the Parc de Princes, United started the game fast, looked dangerous on the counter-attack and had opportunities – a poor touch from Scott McTominay in the area saw a chance wasted shortly after Rashford’s first-minute effort.That start raised hope of an improbable comeback but Barcelona soon took charge and were awarded a penalty in the 11th minute for Fred’s clumsy challenge on Ivan Rakitic in the area only for the decision to overturned after the referee consulted VAR.United survived that scare but their hopes were effectively ended when they allowed Messi to score twice in four first-half minutes.The Argentine dazzled for his first goal with a nutmeg of United midfielder Fred and a perfect finish into the bottom corner, but Ashley Young gave the ball away in the left-back position and the visitors’ defence backed off rather than attempt to stop the shot.Then De Gea, so often United’s star player, made a huge mistake by allowing Messi’s tame shot from 20 yards to slip under his body and in.Unlike in the first leg, Barcelona looked as though they could could cut their opponents open at will.Messi was at the centre of that attacking threat with Jordi Alba also marauding forward from left-back and the Barcelona midfield outplaying their United counterparts, both in terms of their control of the ball and pressing to win it back.No United player made any real impact on a match that proved how great a rebuild is required under Solskjaer if they are to compete with the European elite.last_img read more