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The ECB QE will be between €600B and €1.1T – Bloomberg, WSJ, FT

Several articles coming from Bloomberg, WSJ and FT unveiled details concerning the ECB QE announcement:


1/ According to the WSJ, the bond purchases would reach €50 billion per month that would last for a minimum of one year, which implies a total of €600B (lower bound):


A proposal from the European Central Bank’s Frankfurt-based executive board calls for bond purchases of roughly €50 billion ($58 billion) per month that would last for a minimum of one year, according to people familiar with the matter.
Still, the executive board’s proposal indicates that the ECB could move more aggressively than financial markets have expected. Forecasts among analysts have recently centered on a figure of around €500 billion or higher for a quantitative-easing program, but the executive board’s proposal suggests that bond purchases could amount to at least €600 billion.


2/ According to Bloomberg, ECB proposal circulated to Governing Council foresees asset purchases of €50 billion a month through the end of 2016. Purchases would not start before March which means that the higher bound would be €1.1 trillion:


The ECB president and his Executive Board recommended asset purchases of 50 billion euros a month until December 2016, according to two euro-area central-bank officials.
Purchases of sovereign debt or other assets in addition to the ECB’s existing covered-bond and asset-backed securities programs wouldn’t start before March 1, one of the people said. It hasn’t yet been decided if the target of 50 billion euros a month would include the existing programs, or how much of it would be sovereign debt.


3/ Finally, the FT confirmed the first headlines noting that the ECB is mulling buying around €50 billion-worth of government bonds a month for between one and two years as part of its quantitative easing programme set to be unveiled on Thursday.

The European Central Bank is mulling buying around €50bn-worth of government bonds a month for between one and two years as part of its quantitative easing programme set to be unveiled on Thursday.
The proposal implies the ECB will buy at least €600bn-worth of government bonds, and possibly as much as double that if it continues buying for two years.

The Latest Headlines About ECB QE

On January 17th – Bloomberg:

European Central Bank President Mario Draghi briefed German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble on quantitative-easing plans under which national central banks would buy bonds issued by their own country, Spiegel magazine reported.
The plan, which tries to avoid a transfer of risk between member states, envisages purchases in line with the ECB’s capital key with a limit of 20 percent to 25 percent of each country’s debt, Spiegel said in an article published yesterday, without saying where it got the information. Greece would be excluded from the program because its bonds don’t fulfill the necessary quality criteria, the magazine said.

On January 16th – FT:

Policy makers in Frankfurt are expected to take the momentous decision to embark on quantitative easing on Thursday, with the most likely option at this stage for the ECB to force the 19 national central banks that make up the eurozone to stand behind their own sovereign bonds.


On January 14th – The Independent:

Mr Draghi has many options. If he taps the biggest bond markets – that of Italy for example – he runs the risk of rewarding previous profligacy and mutualising the risk across the entire eurozone, which is unlikely to go down well in Germany.
He could concentrate only on AAA-rated sovereign bonds such as Germany, Austria and much smaller Luxembourg: but the bank might have to spend more to have an effect (German bund yields are already negative) and such a policy isn’t exactly unified, making it very clear who the safe bets are.
A third option, which seems more likely, is to buy up sovereign debt according to each country’s “capital key” – the weighting of its capital at the ECB. It could also ask national central banks to take a “first loss” on bond purchases.

On January 12th – CNBC:

The European Central Bank (ECB) could be ready to announce a quantitative easing (QE) program based on the contributions made from national central banks, a source close to the central bank has told CNBC.
The level of this paid-in capital contribution would determine how much of that country’s sovereign debt the central bank would purchase, according to the source.
Elsewhere on Friday, a source at the ECB told CNBC that the central bank had discussed a 500-billion-euro ($593 billion) quantitative easing program, although experts disagree over whether that amount is enough the help the euro zone.


On January 9th – Reuters:

The European Central Bank is considering a hybrid approach to government bond purchases which would combine the ECB buying debt with risk sharing across the euro zone and, in a nod to German qualms, separate purchases by national central banks.
A volume of 500 billion euros was suggested by ECB experts in a presentation, another source added.
A third central bank source said one of the options that was discussed was one where the ECB would buy a certain share of the total programme and in case of default the risk would be shared among national central banks depending on their capital share.
The remaining part of the programme’s volume would be bought by national central banks, but at their own risk.


NABE Economists Do Not Expect “Tapering” in September

Contrary to the Bloomberg consensus, the NABE (National Association of Business Economists) survey shows that most economists do not expect the Fed to “taper” in September.


More from Bloomberg:


The Fed will reduce its monthly bond purchases from $85 billion at its next meeting on Sept. 17-18, according to 65 percent of economists in an Aug. 9-13 Bloomberg survey. The median estimate is for a cut to $75 billion each month.


More from WSJ:


Most economists say the Federal Reserve won’t begin scaling back its bond-buying program until later in the fall or early next year, according to a National Association for Business Economics survey released Monday.
The economists appear to be more cautious in their outlook than Wall Street banks and even some Fed officials that have looked to the central bank’s September 17-18 meeting as a point to begin easing the pace of bond purchases, currently at $85 billion a month.
Only 10% of 220 economists polled expect the wind down to start before the end of September. The survey found 39% expect the first tapering of purchases in the final three months of 2013 with the remainder saying the Fed will hold off at least until 2014.


This survey was unveiled while several Fed members gave their opinions last Friday about reducing the asset purchases program. All believe that currently, there is not enough data to make a tapering decision in September. San Francisco Fed President John Williams (non-voter) and St. Louis Fed President James Bullard (voter) seem to favor “tapering” later this year. However, Atlanta Fed President Dennis Lockhart (non-voter) could support September if data continue to point toward a sustainable improvement (growth and employment).


My view
I still believe that Fed will not begin to reduce its asset purchase program in September because:
- Since few days, excluding Dallas Fed President Richard Fisher, Fed non-voters, who are more hawkish than voters, have become more cautious concerning the need for “tapering” in September and could be disappointed by economic data.
- Indeed, despite some improvement in Europe and China, the latest US figures for July and August were disappointing and confirmed that growth forecasts published by Fed in June are not reachable. Moreover, investors begin to have concerns regarding the impact of higher mortgage rates to the extent that new home sales fell significantly in July.
Moreover, as Lockhart noted it, a difficult political situation in Washington in the fall could be a blow to confidence.