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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.

 

Deutsche Bank estimates Eurozone Bond Issuance Will Fall in 2015

According to Deutsche Bank calculations, Net eurozone sovereign bond sales are set to fall by almost 14% in 2015 to €221.2B.  Over the same period, Gross issuance is expected to decrease by 1.3% to €893.2B.

 

It means that if ECB launches a QE of €500B this year, it will represent 62% of gross issuance and more than two times as much as the net issuance.

 

Eurozone Q3 GDP Forecasts

Several indicators which can be used to forecast Eurozone Q3 GDP were published this week:

 

1/ Belgian economy grew 0.3% QoQ in Q3 (strongest since Q1 2011).

 
2/ Spanish GDP increased 0.1% QoQ in Q3 (first rebound after nine quarters of contraction).
 

3/ French consumer spending unexpectedly fell in September and in Q3.

 

4/ German real retail sales unexpectedly declined for a second straight month in September.
 

As a consequence, we can build our scenarios with a cautious approach regarding French and German contributions. By taking into account the weight of each economy in the euro area (Germany: 27%; France: 21%; Italy: 18%; Spain: 12% and Belgium: 5%), we get the following forecasts:

 

Growth Forecasts
Scenario Pessimistic Central Optimistic
Germany 0.2% 0.3% 0.4%
France 0.1% 0.2% 0.3%
Italy -0.1% 0.0% 0.1%
Spain (1st publication) 0.1% 0.1% 0.1%
Belgium (1st publication) 0.3% 0.3% 0.3%
Others 0.0% 0.1% 0.2%

 

Growth Contributions
Scenario Pessimistic Central Optimistic
Germany 0.054% 0.081% 0.105%
France 0.021% 0.042% 0.063%
Italy -0.018% 0.000% 0.018%
Spain (1st publication) 0.012% 0.012% 0.012%
Belgium (1st publication) 0.015% 0.015% 0.015%
Others 0.000% 0.017% 0.034%
Total 0.084% 0.0167% 0.0230%
Total (rounded) 0.1% 0.2% 0.2%


 

In the central scenario, based on the main central banks’ expectations, Eurozone growth could reach 0.2% in Q3 2013.