• 13 hours The Coronavirus Is Crushing China’s Car Market
  • 1 day Fighting For Survival In The Streaming War
  • 2 days Want A Job? Forget About A Bachelor’s Degree
  • 3 days Another Major Car Maker Is Backing Hydrogen
  • 3 days Are Americans Finally Sold On Soccer?
  • 4 days Is The Tech Bubble About To Burst?
  • 4 days Coronavirus Could Cost Tourism Industry $80 Billion
  • 5 days What Web Traffic Trends Can Tell Us About The World
  • 5 days Miners Face Greater Headwinds
  • 5 days Boris Johnson Proposes Billion Dollar Bridge To Northern Ireland
  • 7 days Goldman Slashes Oil Price Forecast By $10
  • 8 days Tesla Raises $2 Billion In Share Selloff
  • 8 days What The T-Mobile Takeover Of Sprint Really Means For Markets
  • 9 days The U.S. Has Charged Huawei With Racketeering And Conspiracy
  • 9 days How Hydrogen Could Become The Fuel Of The Future
  • 9 days Millennials Can’t Retire, But They’ll Still Have To Help Their Parents
  • 10 days This Gold Miner Just Increased Its Dividends By 40%
  • 10 days Airbnb IPO Under Threat As China's Economy Drags
  • 10 days The Infamous Equifax Hack Just Became A National Security Issue
  • 11 days BHP Takes The Crown As World’s Top Copper Miner
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…

What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

  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