The European Central Bank’s decision to taper bond purchases is a shot in the arm for the euro, analysts say, and as Bloomberg reports, while policy makers say they may still expand the size or duration of quantitative easing, investors may be inclined to be skeptical.
Frederik Ductozet, economist at Pictet WM
Blackrock's chief multi-asset strategist summed up tomorrow's anxiously awaited ECB meeting best by noting that "what’s priced into markets is a fully fledged extension of the [bond-buying] program," but warns that, thanks to a muted reaction to the Italy vote and recent encouraging data, "there’s a significant chance the ECB disappoints markets." As bond traders bet on a six-month QE extension, Citi warns, anything less will be seen as hawkish and send EUR surging.
Last night we reported that according to Reuters, with a private bailout off the table now that Italy is in political limbo, a nationalization in the form of a government debt-to-equity bailout of Monte Paschi was imminent, however there was a snag: political opposition from Brussels - which has insisted on a bail-in resolution mechanism instead of a bail out - could scuttle the transaction which is meant to make whole junior bondholders - mostly retail investors - courtesy of other taxpayers.
On Sunday night, when we commented on the results of the Italian referendum, we said that while the Italian political limbo may or may not be an issue in the near term, a bigger problem for Italy will be the fate of Monte Paschi, whose 3rd bailout was likely doomed to failure after the failed referendum, which could unleash contagion upon the Italian banking sector at a very precarious time for Italy and Europe.
Submitted by Michael Shedlock via MishTalk.com,
Axel Weber, former head of Germany’s central bank says the ECB is going to halt QE soon and hike rates by September.
Weber warns Markets Unprepared for Central Bank Shifts.