While there has been no global economic outlook cut today, or no further pre-revision hints of “decoupling” by the apartchiks at the US Bureau of Economic Analysis, both European and US equities are pointing at a higher open, because – you guessed it – there were more “suggestions” of “imminent” QE by a central bank, in this case it was again ECB's Constancio dropping further hints over a potential ECB QE programme, something the ECB has become the undisputed world champion in.
To wit: ECB will “consider buying other assets, including sovereign bonds in the secondary market,” if the pace of evolution of its balance-sheet expansion judged not in line with expectations, Vice President Vitor Constancio says in text of speech in London. “In particular, during the first quarter of next year we will be able to gauge better” the impact of current stimulus. Further asset purchases “would be a pure monetary policy decision, buying accordingly to our capital key, within our mandate and our legal competence.” Sovereign QE transmission channels include “signaling and influencing inflation expectations, exploring spill-overs resulting from investors using the cash received to buy other assets, including foreign assets with influence on the exchange rate,” and “increasing credit to the real economy.”
What Constancio did not say is that while private QE, the type the ECB has been engaging in until now, is perfectly legal by the European framework, public QE has been repeatedly frowned upon by Germany and various constitutional courts, not to mention Article 123. But for now every ECB bluff succeeds in pushing both stocks higher and bond yields lower.
In fact, the constant ECB jawboning, and relentless central bank interventions over the past 6 years, led to this:
The punchline: this was another technically “failed” auction as it was uncovered, the 10th of the year, as there was not enough investor demand at this low yield, and so the Buba had to retain a whopping 18.8% – the most since May – with just €3.250Bn of the €4Bn target sold, after receiving €3.67Bn in bids.
But while the central bank domination of all capital markets is well-known, the week's biggest event, the OPEC meeting, got a second glass of cold water after Russia yesterday failed to agree on a production cut, when Saudi Arabian Oil Minister Ali Al-Naimi tells reporters in Vienna, before tomorrow's OPEC meeting that “No one should cut and mkt will stabilize itself.” What's worse, the Saudi turned the tables on the US itself: “Why Saudi Arabia should cut? The u.s. is a big producer too now. Should they cut?” Well, it isn't an OPEC member. But it's good to see that Kerry's “secret” agreement with the Saudis to crush Russia has backfired so spectacularly.
European equities trade mostly in the green in what has been a relatively choppy session so far. European stocks were provided some reprieve in the early stages of trade after EU's Juncker said the EUR 315bln value for the EU's investment programme is not an upper level and they could go beyond that level if investment fund works. However, this upside was relatively short-lived with a lack of further notable newsflow and participants seemingly shrugging off the latest ECB rhetoric with ECB's Constancio saying the central bank may consider sovereign bond buying in Q1 of 2015. On a sector specific basis, utilities lead the way, with RWE (+3.8%) the notable outperformer amid expectations the Co. will maintain its dividend, while energy names drag stocks lower as hopes of a potential OPEC cut continue to abate. Elsewhere, despite coming off their best levels, T-notes edged higher throughout European trade supported by positive month end flows and solid US auctions this week ahead of the final 7yr offering.
Asian markets are somewhat mixed this morning although Chinese equities continue to extend their gains into year end, this is despite a fairly subdued consumer sentiment print in the region this morning (second lowest reading since September 2011, the lowest being last month). Indeed the Shanghai and Shenzhen Composite are up +0.6% and +0.2% overnight which puts them at around +22% and +32% this year on a local currency basis. Relative to other key regional bourses, the China rally has also placed it well ahead of most of the region YTD. Elsewhere in 2014 we have the Hang Seng (+2.4%), Nikkei (+6.8%), KOSPI (-1.4%), ASX 200 (+0.6%) and the Jakarta Composite (+19.6%). The winner so far though is India's Sensex (+33.9%). Credit markets are a tad softer this morning with IG spreads generically 1-2bp wider in Asia as there's little sign that supply is easing into December.
