{"id":3098,"date":"2010-10-25T13:29:48","date_gmt":"2010-10-25T13:29:48","guid":{"rendered":"https:\/\/mmm.9dotdigital.ca\/?p=3098"},"modified":"2025-03-27T15:49:08","modified_gmt":"2025-03-27T15:49:08","slug":"qe2-already-offset-by-ecb-stealth-tightening","status":"publish","type":"post","link":"https:\/\/mmm.9dotdigital.ca\/?p=3098","title":{"rendered":"QE2 already offset by ECB &#8220;stealth tightening&#8221;"},"content":{"rendered":"<p>Are markets too focused on prospective monetary easing in the US and, possibly, the UK, neglecting policy restriction elsewhere?<\/p>\n<p>China delivered a &#8220;surprise&#8221; interest rate hike last week but, in addition, the ECB has been &#8220;tightening by stealth&#8221;. The expiry of long-term refinancing operations has resulted in a 19% contraction in the monetary base since late June, contributing to three-month Euribor moving above 1.0% versus a first-half average of below 0.7% &ndash; see first chart.<\/p>\n<p>The Eurozone reduction has been the main driver of a 7% fall in the G7 monetary base over the same period. World equities have tracked the G7 base since the Fed launched &#8220;QE1&#8221; in late 2008 but a large gap has opened up recently, suggesting that markets have already priced in an additional injection of about $400 billion &ndash; second chart.<\/p>\n<p>An important issue is whether the Fed chooses to sterilise the monetary base impact of the additional asset purchases it will, presumably, announce next week. &#8220;QE1&#8221; was accompanied by the introduction of the &#8220;supplementary financing programme&#8221; (SFP), under which the Treasury issues additional bills to soak up liquidity created by the Fed. The SFP has been static at $200 billion in recent months.<\/p>\n<p>In a recent <a href=\"http:\/\/www.federalreserve.gov\/newsevents\/speech\/bernanke20101015a.htm\">speech<\/a>, Fed Chairman Bernanke referred to asset purchases providing stimulus by lowering longer-term interest rates rather than boosting the monetary base, suggesting that he would be comfortable with a fully- or partially-sterilised operation. A &#8220;QE2&#8221; initiative accompanied by an increase in the SFP would probably deliver less &#8220;bang for the buck&#8221; in terms of wider market impact.\ufeff&nbsp;<\/p>\n<p><span class=\"full-image-block ssNonEditable\"><span><img decoding=\"async\" style=\"width: 680px;\" src=\"\/storage\/chart1_25-10-2010.gif?__SQUARESPACE_CACHEVERSION=1288013862436\" alt=\"\" \/><\/span><\/span><\/p>\n<p><span class=\"full-image-block ssNonEditable\"><span><img decoding=\"async\" style=\"width: 680px;\" src=\"\/storage\/chart2_25-10-2010.gif?__SQUARESPACE_CACHEVERSION=1288013907442\" alt=\"\" \/><\/span><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Are markets too focused on prospective monetary easing in the US and, possibly, the UK, neglecting policy restriction elsewhere? China delivered a &#8220;surprise&#8221; interest rate hike last week but, in addition, the ECB has been &#8220;tightening by stealth&#8221;. The expiry of long-term refinancing operations has resulted in a 19% contraction in the monetary base since [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-3098","post","type-post","status-publish","format-standard","hentry","category-money-moves-markets"],"_links":{"self":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/3098","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=3098"}],"version-history":[{"count":1,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/3098\/revisions"}],"predecessor-version":[{"id":5407,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/3098\/revisions\/5407"}],"wp:attachment":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=3098"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=3098"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=3098"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}