Looking at the main event, today’s start of debt monetization by the ECB in contravention to Article 123 (in Draghi’s own words), here is a concise summary from Deustche Bank’s Jim Reid:
As we start a monumental day ahead with the ECB almost certain to announce QE – even if they are not yet fully ready to implement it – I can’t help wondering what the date will be that we will be able to report that the ECB is out of the money printing game. Once they start it might be incredibly difficult to stop without a political accident on the negative side or a sustainable exogenous positive growth shock. If there is no political accident, will they still be buying bonds into the 2020s? Will they have bought other assets by then or will we have printed money to give directly to citizens before the next decade starts? When QE first started post crisis we felt money printing would be around for years and years. Several years later and we still can’t see an end in sight even if the Fed is currently pausing and the SNB has shown that there is an alternative direction for some. So today likely starts a new chapter, even a new section of a book that is nowhere near finished.
A closer look at Asia’s bourses shows the Nikkei 225 (+0.28%) remained relatively flat throughout the session amid light news flow and a light economic calendar. Elsewhere, both the Hang Seng (+0.7%) and Shanghai Comp (+0.6%) after the PBoC rolled-over CNY 269.5bln of lending facilities yesterday and today pumped CNY 50bln into money markets via 7-day reverse repos, with an aim to address Lunar New Year, IPO and Tax payment demands.
Looking at ground zero of today’s action, European equities (Eurostoxx50 -0.18%) trade mixed with market participants side-lined ahead of the ECB rate decision, where the central bank are widely expected to announce the intricacies of QE, or, taking a page out of the OMT playbook, Draghi may simply reveal in broad strokes what ECB’s QE will look like and withhold all details: after all it is not as if the ECB is not engaging in illegal state financing – why stop breaking the laws here? Bunds (-34 ticks) have seen a continuation of yesterday’s losses amid uncertainty on the size and scope of the QE program and the German curve is steeper in early trade; this comes as positions are squared ahead of the ECB meeting today at 1245GMT/1330CST and press conference at 1330GMT/0730CST. Furthermore, some analysts and traders are looking for a EUR >1trln QE program given the ECB sources yesterday suggesting that QE could begin in March through 2016 at EUR 50bln per month. However, the uncertainty in the market stems from the fact that the program could also be left open ended.
In summary: European shares mixed, off intraday highs, with the health care and food & beverage sectors underperforming and basic resources, oil & gas outperforming. ECB rate decision expected at 1:45pm CET (7:45am Eastern) with Draghi press conference outlining likely QE due 45 minutes later at 2:30pm.
