Published: Thu, September 07, 2017
Money | By Armando Alvarado

Strong Euro Puts QE Tapering in Doubt

Strong Euro Puts QE Tapering in Doubt

This policy brought the two monies close to parity for two years (around 1.05 from March 2015 until January 2017). These reports knocked the Euro down from the highs it reached on Tuesday above the psychological 1.20 level. The Eurozone single currency has gained 14% from the beginning of the year, with the tempo of appreciation accelerating. On the other hand, for bonds, the eurozone is still suffering net outflows of €40.6 billion.

Germany's short-dated government bond yields dipped to their lowest levels in over four months on Monday after the sixth and most powerful North Korean nuclear test a day earlier lifted demand for safe-haven assets.

"Traditional fund managers have followed suit with hedge funds and have started selling dollars to buy euros", explains Stephen Jen of Eurizon SLJ Capital.

Investors will be watching the ECB's latest policy meeting on Thursday for signs that the bank is edging towards bringing its purchases to an end.

Markets expect a cautious but optimistic tone from the bank, so any deviation from this expectation could influence Euro movement.

USA crude futures settled at $49.16 per barrel, up 50 cents or 1.03 percent. "Uncertainty around the QE taper announcement this week, combined with heightened market expectations and the release of updated staff forecasts, suggest scope for market moves". As such, the ECB injects liquidity into the financial system and aims to boost the economic growth and the inflation toward the bank's 2% mandate target. The inflation observed is still too closely linked to oil prices.

How will the euro react to the ECB's outcome?

Packers make it official, sign linebacker Brooks
The result? Seattle's first loss by more than 10 pts in more than 5 years. "You get more comfortable going against them". Two drafted rookie receivers were also released in DeAngelo Yancey (fifth round) and Malachi Dupre (seventh round).

The Australian dollar was back below 80 USA cents after the retail sales and trade data.

S&P 500 Index futures slipped less than 0.1 percent after the underlying gauge rose 0.3 percent. The shock of the jump in the French Treasury bond was more severe: 0.63 percent on June 27, 0.97 percent on July 10, 0.85 percent on July 19. This has been largely due to underwhelming Eurozone data and market anxiety ahead of Thursday's highly anticipated European Central Bank (ECB) meeting.

We do not expect this trend to reverse anytime soon and believe monetary policy is likely to continue to have little role to play. The Fed's Beige Book showed limited wage pressures despite a tightening labor market, while describing growth as "modest to moderate".

The ECB immediately tried to calm down investors.

Along with low interest rates and cheap loans to banks, the ECB's 60 billion euros ($71.5 billion) of bond purchases per month are created to encourage growth in the 19-nation eurozone, pushing inflation towards its target of just below 2.0 percent.

A separate Reuters poll forecast the central bank would announce a reduction in its monthly asset purchases as early as October, with the programme ending completely by the end of next year. This is why German Bunds are the dominant part of the program (€404 billion), while only €28 billion of Portuguese bonds have found their way onto the European Central Bank balance sheet, despite a huge debt to GDP ratio.

"We did not discuss what we will do in September (...) and after", said Mario Draghi during his press conference, even though the markets expected a few details about it from him. According to recent estimates of Morgan Stanley, at a rate of €18 billion a month, which is the amount the European Central Bank was purchasing before "closing the taps", it would take only 4-5 months before touching this 33% limit.

Like this: