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The odds of unsterilized large-scale asset purchases - i.e., LSAPs, i.e., QE - from the ECB have pushed past 50:50 says Citi;s Guillaume Menuet, and the program could begin as early as September.
How? Citi's team expects the ECB to buy both public and private-asset classes, with a majority likely to be things like sovereign bonds. As for size, Citi sees a bare minimum being €1T. This compares to the BoE's £375B program and the Fed's current pace (amid the taper) of $55B per month.
Don't look for action before September, though, says Menuet, as the ECB will likely wait and see if easing at the June meeting begins to do the trick of bringing inflation back up towards its 2% target. Will it work? "While it will likely be on a scale large enough to excite financial markets, we are doubtful it will be on a scale large enough to transform the economic outlook from an extended period of low inflation and low interest rates.”
George Soros' "worst expectations" in regards to the EU have been "fulfilled," he says, and the bloc faces 25 years of Japanese-style stagnation. While Japan - being one nation - has survived, the EU may not.
Soros naturally blames the creditors (i.e., the Germans), and finds it alarming that the EU's banks - when they should be providing capital to boost growth - are instead hunkered down to try and pass the ECB stress test.
His comments come amid the launch of his latest book, "The Tragedy of the European Union."
The euro pops above $1.38 as Mario Draghi - in his post-ECB meeting press conference - gives no indication in the early-going of any consideration of further monetary ease. It had been thought declining inflation might prompt action, but Draghi calls the upside and downside risks to price developments broadly balanced over the medium-term.
Who could have thought raising interest rates 425 basis points would be bearish? A curious rally following Turkey's defense of the lira - it jacked rates to 12% from 7.75% - has completely reversed. One feels a 1992-like vibe where the Bank of England hiked like crazy to defend the pound, but then ultimately had to let it go (also creating a bottom in stocks).
In Europe, the Stoxx 50 (FEZ) is off 1.3%, with Turkey (TUR) now down 2.3%.
South Africa joins the party, unexpectedly hiking its benchmark interest rate by 50 basis points to 5.5%. EZA -2.8%.
A check of Brazil (EWZ -1.3%) and India (EPI -1.1%) - where monetary policy has also been tightened this week - finds them lower as well.
The money is flowing into U.S. Treasurys which continue a big 2014 rally. The 10-year yield is off five basis points to 2.71%. TLT +0.3%, TBT -0.5%.
The euro gives up sizable gains and turns lower and European stocks add to gains as Mario Draghi - at his post-ECB decision press conference - calls it too soon to declare victory over the eurozone crisis. The economy is recovering, but there are factors afoot which could undermine it - among them a falling inflation rate and a tightening in money markets. He reiterates the bank's intention to use all available instruments as necessary.
The euro is down about 70 pips since he started speaking, now off 0.1% on the session and buying $1.3562. The Stoxx 50 is ahead by 0.7%.
"Europe remains under the threat of prolonged stagnation as deflation and low growth are likely to become entrenched in the absence of vigorous action from European policy makers," says Morgan Stanley, cutting its recommendation on European equities to Neutral. The bank continues to prefer developed market stocks over emerging, but believes Europe's risk-reward profile is below that of the U.S. and Japan.
The team also notes European valuations - price-earnings ratios are at a 12-year high relative to the MSCI World All Countries Index at the same time "corporate earnings have disappointed, credit is contracting, and leading indicators have rolled over."
As expected, Eurozone flash manufacturing PMI has edged up to a 29-month high of 51.5 in November from 51.3 in October.
However, services slipped to 50.9 from 51.6 and missed consensus of 51.9.
Composite output declined to 51.5 from 51.9 and fell short of forecasts of 52.
Manufacturing output edged down to 52.8 from 52.9.
"It looks like momentum is being lost again," says Markit. "Deflationary forces may be gathering," while growth outside the "big two" of Germany and France "slowed to near-stagnation." French activity actually contracted.
Overall, the data is indicating that eurozone GDP will rise a "very modest 0.2%" in Q4, says Markit. The second-successive fall in PMI "suggests that the ECB was correct to cut interest rates to a record low at its last meeting."
As expected, Eurozone CPI dropped 0.1% on month in October vs +0.5% in September.
On year, inflation fell to +0.7% (also in line) vs +1.1% previously.
Core CPI +0.8% vs +1%.
Inflation fell further away from the ECB's target of just under 2%, possibly giving the bank even further room to cut interest rates to zero - although the German's would surely have something to say about that - following the surprise reduction last week to 0.25%. (PR)
EU stocks are mixed heading towards midday following the Yellen-induced rally yesterday, with the EU Stoxx 50 -0.1%, London +0.3%, Paris flat, Frankfurt flat, Milan -0.7% and Madrid -0.1%.
Eurozone Q3 GDP (Q/Q): +0.1% versus +0.2% expected and +0.3% previous.
The euro (-0.3%) drops to session lows against the greenback on the news as investors view the weaker-than-expected data as evidence that the ECB will need to maintain an ultra-accommodative policy stance for the time being.
Eurozone services PMI declined to 51.6 (flash 50.9) from 52.2 in September.
Composite output dropped to 51.9 (flash 51.5) from 52.2, although business activity still grew for the fourth consecutive month.
The fall in the surveys indicate a loss of momentum at the start of Q4, says Markit, raising "concerns that the upturn is faltering" and increasing the pressure on the ECB "to reinvigorate the recovery," especially with inflation so low.
Still, the economy is expanding across the board in Germany, France, Italy and Spain. "Most impressive is the surging pace of growth seen in Ireland."