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28 Aug 2014
Three mitigations for QE from ECB - BBH
FXStreet (Guatemala) - Marc Chandler, Global Head of Currency Strategy at Brown Brothers Harriman said that there seems to be at least three other channels that could mitigate the imminent need for QE:
Key Quotes
"(1) fiscal spending, (2) the impact of the June rate cuts and lower yields, (3) and the TLTRO”.
“(1) Fiscal spending. As widely discussed, Draghi seemed to soften his views by suggesting that deficit rules be made more flexible. It remains to be seen whether spending will be higher than the ECB expects, but the fact that Draghi mentioned it suggest that this is an important variable in the bank’s current reaction function."
"(2) Since the ECB cut rates in early June, yields have been on a clear downward path, and then the declines accelerated after Jackson Hole. For example, German 10-years yields fell from 1.4% to the current level of 0.9% since June."
"Spanish yields of the same maturity declined from around 2.8% to 2.1% (25 bp below equivalent US Treasuries). The declines have been gradual, and the impact in lending is still unknown."
"(3) TLTRO. Of the €1 tln offered in September, the ECB expects a take up of between €450-850 bln. That’s quite a wide range, and implies a high degree of uncertainty by the ECB”.
Key Quotes
"(1) fiscal spending, (2) the impact of the June rate cuts and lower yields, (3) and the TLTRO”.
“(1) Fiscal spending. As widely discussed, Draghi seemed to soften his views by suggesting that deficit rules be made more flexible. It remains to be seen whether spending will be higher than the ECB expects, but the fact that Draghi mentioned it suggest that this is an important variable in the bank’s current reaction function."
"(2) Since the ECB cut rates in early June, yields have been on a clear downward path, and then the declines accelerated after Jackson Hole. For example, German 10-years yields fell from 1.4% to the current level of 0.9% since June."
"Spanish yields of the same maturity declined from around 2.8% to 2.1% (25 bp below equivalent US Treasuries). The declines have been gradual, and the impact in lending is still unknown."
"(3) TLTRO. Of the €1 tln offered in September, the ECB expects a take up of between €450-850 bln. That’s quite a wide range, and implies a high degree of uncertainty by the ECB”.