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Friday, June 6

5th Jun - Post-ECB Views

June 6

Breaking down the TLTROFT
A reasonable boost for the periphery then even if net additional liquidity (due to rollovers and LTRO repayments) is still an open question and worries about the efficacy of the ECB’s own Funding for Lending Scheme are likely to keep the boost minimal — AQR, capital concerns may keep banks cautious, even if they wanted to lend away there is a demand and deleveraging issue, while larger corporates have been heading to capital markets at an increasing rate anyway.

Draghi Faces Off With Regulators Over $2 Trillion Market for Tricky DebtBB
Mario Draghi is on a collision course with regulators as he seeks to revive Europe’s asset-backed debt market to boost lending to businesses.

What Mario Draghi Did Today: Goldman Sachs ExplainsZH
It is difficult to say with certainty at this stage what the net effect of these different measures will be on lending and the economy. But the ECB has clearly bought itself time before engaging in further measures. The next step will be outright purchases of ABS, for which the “preparatory work has been intensified”. There was no indication that the Governing Council was moving closer to a large-scale asset programme, even though it was not ruled out.

ECB tries to please everyone, but failsTradingFloor
The ECB tried to please everyone by deploying all of the tools at its disposal with the exception of quantitative easing. Unfortunately, the package leaves plenty of loose ends and unanswered questions.

Jury out on ECB's negative interest rateTradingFloor
Everybody is trying to work out what the ECB did yesterday. The much-needed reparations to structural economic black holes, unemployment, real inflation and the like will not be achieved.

A look at today's ECB action - without the hypeSober Look

June 5

ECB cuts deposit rate below zeroFT
The European Central Bank has unveiled a package of extraordinary measures that policy makers hope will help the currency bloc to stave off the threat of deflation.

Draghi Unveils Historic Measures on Deflation ThreatBB
Mario Draghi unveiled an unprecedented round of measures to help the European Central Bank’s record-low interest rates feed through to an economy threatened by deflation.

ECB hurls cash at sluggish euro zone economy, seeks to force bank lendingReuters
The European Central Bank launched a raft of measures on Thursday to fight low inflation and boost the euro zone economy, cutting rates, imposing negative interest rates on its overnight depositors and offering banks new long-term funds.

Draghi to Europe: “I think I can. I think I can” — WesselWSJ
“If need be, we are not finished here,” he said. One big question, unanswerable, lingered after the press conference ended: Will it be enough?

ECB enters unchartered territory - with one footMerkelnomics
Today’s measures are not yet a whatever-it-takes moment for the Eurozone economy but they are at least a good package which will give the Eurozone some additional monetary tailwind.

Stocks Hit Record Highs As Bonds & Euro Shrug At ECBZH
The most critical asset to be impacted by the ECB - EURUSD - is not reacting and is now actually higher than before Draghi unleashed his mini-LTRO.

ECB shows activism but falls short of true QEBruegel
We welcome that the ECB has finally acted with a broad package. We also think that unanimity on the package was a very positive development and sends a strong signal of unity. We expect the package to have a positive effect, however, it will take quite some time until inflation dynamics will come back to where they should be and further measure will likely be needed. A more aggressive QE (including €35bn purchases of ESM/EFSF/EIB bonds, corporate bonds and ABS) would have anchored inflation expectations more quickly as portfolio re-balancing and exchange rate channels would have operated immediately.

Draghi's Action Plan Cheat Sheet: "Not Many Options Left"ZH
Draghi does not have many options left. Think QE is coming anytime soon? Think again, says Morgan Stanley...

Draghi has yet to banish the threat of deflationFT
The acid test will be the path for inflation in coming months…so one test of success lies with the performance of the euro in coming months… As with 1990s Japan, deflation remains a big risk partly because no one is prepared to admit it could really happen.

5 Takeaways From The ECB’s Moves on RatesWSJ
Negative Deposit Rate * Banks Are Being Encouraged to Lend * It's Working on Asset-Backed Securities * There's a Sort of 'Mini-QE' * But No Full QE

The ECB Stops Sterilizing Its SMP – At A GlanceWSJ
By halting sterilization the ECB is, in effect, delivering its own QE, albeit a relatively modest amount. As of the end of May, outstanding SMP assets totalled €164.5 billion ($223 billion). Next to other central banks’ total purchases this is small beer. But it reverses recent declines in euro-zone liquidity. And, more importantly, establishes a precedent for ECB QE.

Very Nice Mr Draghi, But Will It Work?WSJ
While the ECB produced a bigger show than many people were expecting, there might be less substance to it than many had hoped.

The waiting is overThe Economist
The ECB has certainly done a lot today, but its measures look insufficiently potent to break the spell of “lowflation”…If the ECB does find that its June package is inadequate to do the trick, then it may find that it has to adopt quantitative easing and to buy assets on a large scale by creating money just as other big central banks, such as the Fed, have done. The worry is that it may reach that conclusion too late, making a possible lurch into deflation more likely, which would be particularly pernicious for the euro zone since many parts of it are burdened by excessive private debt as well as public debt.

Why the Euro Is Stronger After ECB Went NegativeWSJ
Without matching the bazookas of the Fed/BOJ/BOE/PBOC, however, the ECB is still condemning itself to a strong euro, which will undermine European producers’ competitiveness and keep import prices low. The euro zone will continue to import deflation from elsewhere, ensuring that Mr. Draghi’s fear of a Japan-like “pernicious negative spiral” won’t go away.

How Hedge Funds Are Trading the ECB’s MovesWSJ

ECB’s Measures: New Twist on Old TuneWSJ
There’s no doubt the ECB’s package of actions Thursday is significant, but the measures are all variations on things the ECB has tried before. One potentially significant option, large-scale asset purchases known as quantitative easing, remains unused in the toolbox. Thus, it is by no means certain that the ECB’s latest plan will boost inflation and growth in the euro zone.

The ECB Needs to Get Its Crazy OnWSJ
Mario went negative, but he didn’t go crazy. That may end up being a problem. “The ECB’s timidity on Thursday does nothing to calm fears the ECB will continue to do too little, too late”

Less than zero: Europe introduces negative interest rates to save its economyWaPo
The ECB is doing about as much as the northern Europeans will let it. Draghi has to keep figuring out how to get them to do even more—or Europe will keep turning Japanese.

ECB’s Draghi Finds it Hard to Remember What He’s Never DoneWSJ
The OMT program has never been used, and no document has ever been published by the ECB setting out how it would be used. And to be fair to Mr. Draghi and Mr. Constancio, it’s difficult to remember what you’ve never done, right?

Implications of the ECB easing measuresDanske Bank
While it is difficult to judge how much the TLTROs will indeed boost liquidity we believe it will be by
a significant amount. The combination of negative rates and rich liquidity will support performance in peripheral markets, lead to lower money market fixings, steeper yield curves, higher break-even inflation and lower EURUSD cross currency basis

ECB: "We are not finished"Nordea
ECB delivered a whole package of measures just as we expected. As a result, longer core yields initially rose, the curve steepened and the euro depreciated. We see more upside potential for long yields, but expect EUR/USD to rebound soon. As it will take a long time to see the effect of the measures announced today, the ECB will be very reluctant to jump into any QE programme any time soon, but the ABS programme will be added to the stimulus package later.