• 3 days Markets Unfazed As Inflation Hits 13-Year High
  • 4 days How the Token Economy is Disrupting Financial Markets
  • 6 days FBI Investigating 100 Types Of Ransomware Attacks
  • 8 days Fed Ends Corporate Credit Emergency Lending Program
  • 10 days AMC Becomes the Latest Winning Meme Stock After GameStop
  • 11 days The Real Reason Your 401k Has Been Lagging
  • 12 days China Lifts Cap On Births, Allows Three Children Per Couple
  • 14 days The Market Is Ripe For Another GameStop Saga
  • 17 days Senate Grills Big Banks Over Pandemic Opportunism
  • 18 days Cannabis Has A Major Cash Problem
  • 19 days Ransomware Netted Criminals $350M In 2020 Alone
  • 20 days Russia Is Taking On Google
  • 21 days Chinese Regulators Deal Another Big Blow To Bitcoin
  • 22 days Ohio Residents Brave Vaccine for Chance To Win $1M
  • 24 days Inflation Is Coming. Are You Prepared?
  • 25 days 3 World-Shaking Trends Investors Need To Watch This Year
  • 25 days Travel Might Get Another Supersonic Disruption
  • 26 days The World Is Running Out Of 6 Key Resources
  • 27 days $15/Hour Minimum Wage Might Happen Naturally
  • 29 days Money-Laundering Binance Probe Report Adds To Bitcoin Woes
  1. Home
  2. Markets
  3. Other

ECB's QE Impact Fades Already

On March 10, ECB president Mario Draghi pulled out his bazooka and fired what was supposed the be a shock and awe blast of QE that would sink bond yields and the euro.

Instead the euro rallied along with yields on European bonds. Traders front ran the the announcement and the trade is unwinding.

European bonds had their worst month since August.

Bloomberg reports ECB QE Boost Can't Save Euro Bonds From Worst Month Since August.

The first month of the European Central Bank's expanded stimulus program has done little to aid the region's government bonds.

Even as the ECB increased its asset-purchase program to 80 billion euros ($92 billion) in April, from 60 billion euros, sovereign securities headed for their biggest monthly decline since August, according to Bloomberg World Bond Indexes.

ECB QE Impact Fading

"The whole notion of the ECB stepping up their purchases in April and May has already been front run," said Martin van Vliet, senior interest-rate strategist at ING Groep NV in Amsterdam.

Euro-region government securities handed investors a loss of 1 percent this month through Thursday, the Bloomberg Eurozone Sovereign Bond Index shows. U.S. Treasuries dropped 0.3 percent, while Japanese bonds returned 0.9 percent.

The five-year, five-year forward inflation-swap rate, which ECB President Mario Draghi has cited in the past to justify monetary easing, climbed to 1.47 percent Friday, the highest closing level in almost seven weeks, as Brent crude futures touched the most since Nov. 4.


Shock and Aw Shucks Revisited

Actually, the announcement fizzled immediately.

I said so on March 10 in Draghi's "Shock and Awe" campaign morphs into "Shock and Aw Shucks"

Draghi's plan worked for all of 15 minutes. The market then had second thoughts on the Euro, on gold, on the German stock market, and on equities in general.

Aw Shucks on the Euro

EUR/US 15-Minute Chart

Aw Shucks on Gold

Gold 15-Minute Chart


Euro Daily Chart

Draghi was hoping the euro would sink to boost inflation and help exports. Instead, after a brief intraday selloff, the euro rallied and it has continued along that path.

EUR/USD Daily Chart


What Happened?

Clearly the trade was front run, but there is a bit more to it than that.

Draghi has simply run out of room to cut rates further into negative territory. It has to do with mortgages and bank losses.

For the full explanation, please see Is There a Limit to Draghi's Negative Interest Rate Madness?

 

Back to homepage

Leave a comment

Leave a comment