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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.

Chinese National Day Holidays: Press Reports Suggest that Tourism Activity and Domestic Consumption Were Strong

First press reports concerning China National Day Holidays suggest that tourism activity and domestic consumption were strong.

 

More from the FT:

 

With China’s highways snarled by traffic, thousands of tourists stranded at one of the country’s beloved national parks and millions more crushing into its most popular attractions, there is little question that the Chinese nation is once again on holiday.
 
Early government estimates are that this National Day holiday week, which began on Tuesday, will be a record for the country in terms of domestic visitor numbers and tourism revenue, with both up about 20 per cent compared with the same period 12 months earlier.
 
Overall, there were 8.4m tourists at China’s 125 most-visited tourist sites over the first two days of the National Day holiday week, up 19 per cent from a year earlier, according to the national tourism administration. Revenue at these sites was up 27 per cent year on year, reaching Rmb437m ($71.4m).

 

More from the WSJ:

 

Scenic spots around China are reportedly mobbed with visitors during a long national holiday this week, which has many ordinary Chinese frustrated. But this is actually an encouraging sign for the country’s economy.
 
The total number of people arriving at major tourist sites in China over the first two days of the “National Day” holiday is up 18.8% from last year.
 
Other data tell a similar story. On Oct. 1, the first day of the holiday, Chinese railroads carried 10.3 million passengers. That’s up 13.2% from a year earlier, according to government figures.

 
My view
 
- Strong tourism numbers pointed to robust consumer confidence and seasonal hiring.
- Consumption should remain strong in October confirming the steady increase of retail sales since the beginning of the year.

Fiscal Issues Will Prevent Fed to Taper in September – FT

As I said in different posts (1, 2, 3), FT noted yesterday that fiscal divisions could prevent Fed to taper in September. Even if a minority of economists believe the fiscal environment could contribute to a delay in the first tapering move, divisions between Republicans and Democrats have widened since several weeks heightening the risk of a possible government shutdown as early as October 1.

 

More from FT:

 

The growing threat of a political stand-off over fiscal policy in Congress could limit the Federal Reserve’s drive towards slowing asset purchases in the coming months, some economists say.
 
US central bank officials are weighing a tapering of bond buys as early as the next meeting of the Federal Open Market Committee on September 17-18 and are expected to approve such a move as long as the economic data remain relatively strong.
 
But while figures on employment, inflation, factory activity and housing are expected to be the main drivers of the Fed’s decision, officials will also be monitoring developments on Capitol Hill. Divisions on fiscal policy between Republicans and Democrats have widened, heightening the risk of a possible government shutdown as early as October 1, and even a crisis over raising the US borrowing limit between mid-October and mid-November, possibly leading to another brush with a debt default.

After Fiscal Mess, Uncertainty Concerning Monetary Policy is Coming in US

According to FT, Larry Summers, which is now seen as the front-runner to replace Fed Chairman Bernanke, made dismissive remarks about the effectiveness of quantitative easing at a conference in April, raising the possibility of a big shift in US monetary policy.

 

More from FT:

 

“QE in my view is less efficacious for the real economy than most people suppose,” said Mr Summers according to an official summary of his remarks at a conference organised in Santa Monica by Drobny Global, obtained by the Financial Times.
 
Mr Summers – who served as President Barack Obama’s chief economic adviser from 2009-2010 – has seldom spoken in public about monetary policy. Markets have little sense of his current thinking and may be surprised by his apparently hawkish stance on QE.

 

The disclosure of his remarks comes as the race for the Fed chairmanship is widely regarded as being between Mr Summers and Janet Yellen, the current Fed vice-chair, who has been an architect of its QE policies. The fact is that even if even Larry Summers seems to be backed by President Barack Obama, that’s not the case for a number of US Senate Democrats who sent a letter supporting Janet Yellen as the next Fed Chairman.

 

More from FT:

 

A number of US Senate Democrats are circulating a letter supporting Janet Yellen to be the next chair of the Federal Reserve in an ominous sign for supporters of Larry Summers.
 
The letter has been pushed by Sherrod Brown from Ohio, Senate officials said, one of the chamber’s leading liberals and a longtime critic of financial deregulation and trade liberalisation.
 
Signatories include Tom Harkin of Iowa, and Dianne Feinstein of California.
 
Senate officials said a single copy of the letter had been circulated to the chamber’s 54 Democrats. It is not known how many senators have signed the letter.

 

The second story shows that there could be some tensions in the Democrat Party in a context where President Barack Obama will confront with lawmakers (after a long August holiday) on a daunting list of decisions affecting the economy (“continuing resolution”, 2014 fiscal budget, fiscal consolidation plan and debt ceiling) and therefore will need the full support of his party. If he remains isolated and unable to find a compromise with Republicans, automatic, across-the-board budget cuts of $109 billion, could entry into force on October 1st.

 

In the meantime, if Larry Summmers is chosen, it could apply a less accommodative monetary policy which could increase uncertainty and the fear of a return into recession.