• 1 hour 3 Restaurant Stocks In Full Recovery Mode
  • 9 hours Bitcoin Is Driven By Testosterone
  • 5 days Quantum Computing Is The Newest Megatrend In Silicon Valley
  • 6 days How To Invest In The Cybersecurity Boom
  • 8 days Investors Are Patient With Unprofitable Giants
  • 10 days Wells Fargo Back In The Scandal Spotlight Once Again
  • 12 days 5 Stocks To Keep A Close Eye On This Year
  • 13 days As Auto Giants Flail, Look To Chip Stocks For Gains
  • 14 days Central America Is Ready For The Bitcoin Hustle
  • 16 days China’s Video Game Restrictions Unlikely To Slow Down Booming Industry
  • 17 days Top Performing Stocks As Inflation Fears Grow
  • 18 days US Airline Stocks Take A Beating On New EU Restrictions
  • 19 days This IPO Could Open Sustainable Fashion Floodgates
  • 20 days Crypto Crime Nets Another $2B Fraudster
  • 22 days This Week’s Hottest Meme Stocks
  • 23 days Why World Markets Should Be Watching Germany Closely
  • 25 days Could ‘Cultured’ Meat Rival The Plant-Based Megatrend?
  • 28 days ‘Easy Money’: Crypto Is Still Attracting Newbie Investors
  • 29 days Foreign Syndicates May Have Stolen Up To $400B In COVID Benefits
  • 30 days Gold Jumps Above $1800 Ahead Of Jackson Hole Summit
What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

Ashraf Laidi

Ashraf Laidi

AshrafLaidi.com

Ashraf Laidi is the author of "Currency Trading and Intermarket Analysis: How to Profit from the Shifting Currents in Global Markets" - Wiley Trading.

Contact Author

  1. Home
  2. Markets
  3. Other

Does Draghi's Coup Secure Yellen's Liftoff?

To some, the ECB has underdelivered today by not only cutting rates by a smaller than expected 0.10 bp in the deposit rate to -0.3% from -0.2% (vs exp -0.4%) but also disappointed most market players by only extending the duration of QE to an additional 6 months and not adding to the monthly $60 bn QE. The ECB's decision to opt for QE extension rather than QE expansion reflects the broad signs of improvement in German growth business surveys. Germany's IFO and various Eurozone PMIs and confidence surveys have hit 17 to 52-month highs.


The Car Example

We long said here that a rate cut of 10-20 bps would be a desperate move to drive down interest rates deeper into negative territory, but would be of no effectiveness, if not accompanied by any substantial rise in monthly purchases. In fact, even a rise of EUR 10-20 bn euros in monthly purchases would not have mattered beyond the odd 100-100 point rally in the Dax. Why? The ECB succeeded in unleashing its policy shock-&-awe (sharp rally in equities, positive shock in Eurozone system liquidity and a lasting decline in the euro's exchange rate) thanks to an increase in monthly asset purchases from EUR 0 bn to EUR 60 bn. That was in March. Today, any announcement of QE expansion from EUR 60 bn to EUR 75 bn or EUR 90 bn, would have been less effective, just as a car would more likely to be noticed accelerating from 0 to 30 km/hr than a car going from 50 to 70 km/hr.


Larger Image

13 days is a long time in today's markets

Keeping powder dry in the form of interest rates and QE size is the evident excuse/explanation for the ECB's under-delivery. Yet, the more fundamental question is the following: "Will Draghi coup guarantee a US rate hike?" If today's USD declines are built upon with additional (possible) selling from a disappointing US November jobs report tomorrow, could well pave the way for December liftoff -- although I continue to have my doubts and stick with my prediction for no rate hike this month. The risk of a market-driven tightening (in the form of equity markets sell-off (this time from the US not China) may go so far in blocking a December rate hike. The earnings and manufacturing recessions in the US have been overshadowed by explanations and excuses of temporary phenomena. 13 days is a long time in today's markets. A 110K NFP figure coupled with a rise in the jobless rate and neutral average hourly earnings can go a long a way in transforming 70% odds of a December liftoff down to 40%.

Many of our Premium subscribers had initially been sceptical towards our 052008 Parallel postulated in various charts of global indices. Today's market moves have further bolstered the theory, which could assault long established seasonals.

 

Back to homepage

Leave a comment

Leave a comment