• 346 days Will The ECB Continue To Hike Rates?
  • 346 days Forbes: Aramco Remains Largest Company In The Middle East
  • 348 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 748 days Could Crypto Overtake Traditional Investment?
  • 753 days Americans Still Quitting Jobs At Record Pace
  • 755 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 758 days Is The Dollar Too Strong?
  • 758 days Big Tech Disappoints Investors on Earnings Calls
  • 759 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 761 days China Is Quietly Trying To Distance Itself From Russia
  • 761 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 765 days Crypto Investors Won Big In 2021
  • 765 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 766 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 768 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 769 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 772 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 773 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 773 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 775 days Are NFTs About To Take Over Gaming?
What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

  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