European Central Bank

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Three months ago, on December 4, when the ECB clearly disappointed markets and European stocks tumbled as the Euro soared, it took a speech by Mario Draghi at the Economic Club in NY to send stocks soaring...

In our snap assessment of the ECB's decision yesterday, we highlighted some of the key highlights: the most important part of Draghi's monetary expansion was the inclusion of investment grade non-fin European corporate bonds, a necessary precondition to expanding QE by €20BN due to the scarcity of treasury collateral; the total €1.6 trillion universe of eligible Investment Grade bonds while sizable, is actually far less than it appears on the surface, that there is a "crowding out" danger as traders rush to sub-IG debt which may impair liquidity in the IG bond market next, and that many que

Having discussed the market's disturbing reaction to Mario Draghi's desperate "all in" monetary gamble - one which saw an early bout of euphoria followed by one of the most aggressive Euro spikes in history, second only to the "December debacle" and the Fed's March 2009 announcement of QE1, we were waiting for the just as important reaction by the ECB's nemesis: the one country that not only has seen hyperinflation first hand (and appears to recall it vividly), but is just as aware where the ECB's monetary lunacy ends: the Germans.

Three months ago, when the ECB released its latest quarterly inflation expectations, we mocked that "there is a bit of a hockeystick" going from 2015 to 2016, when HICP inflation was expected to soar from 0.1% to 1.0%.

We said the following:

"in March 2014, the ECB predicted 2016 year end inflation would be 1.5%. It now predicts it will rise to 1.0%, decidedly lower than the 1.5% predicted in June, and yet in our humble opinion, still about 1% higher than where it will end up."

Visually: