Markets Dance to the Tune of the ECB

126857887The European Central Bank (ECB) followed through on ECB president Mario Draghi’s pledge that it would re-expand its balance sheet by formally launching a quantitative easing (QE) bond-buying program which included sovereign bonds. In essence, it’s €60 billion/month from March 2015 until September 2016 with a commitment to further action if the ECB doesn’t see a “sustained adjustment in the path of inflation”.  Draghi again demonstrated his mastery of expectation management. Continue reading

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7 Things You Need To Know About Today’s ECB Quantitative Easing Announcement

Mario Draghi

Mario Draghi

1. Size and duration: Purchases totalling €60bn per month, starting in March 2015 and lasting until September 2016, giving a total size of €1.1trn. This is much higher than expected. Note also the phrase that the programme will continue until there is an upward adjustment in inflation expectations to close to, but below, 2%. So the programme could potentially extend beyond September 2016 and be bigger than €1.1trn.

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How Did Switzerland and India Surprise Currency Markets?

Map Projected on Stock Market ListingsBoth the Swiss and Indian banks surprised the markets last week by moving between meetings – upsetting the de facto status quo of recent years where policy moves were only announced at formal meetings.

The Swiss National Bank (SNB) dropped its policy of capping the Swiss franc at 1.20 per euro last week (a policy in place since September 2011). As David Greene noted in his post on January 16, this was the biggest movement in a major currency pair since the collapse of Bretton Woods in 1971. The franc jumped, ending the week up more than 20% against the euro. Continue reading

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My Word is (Not) My Bond

517155393In what we believe to be a stunning (and perhaps even shocking) move yesterday, the Swiss National Bank (“SNB”) announced the immediate termination of its policy to floor the Swiss franc to the euro. The reaction was swift and brutal. The Swiss franc rallied from its old floor level of 1.20 against the euro to 0.84, before settling around 1.03. Seasoned FX (“foreign exchange”) traders reckoned this was the biggest movement in a major currency pair since the collapse of Bretton Woods in 1971. The SNB also cut deposit rates to -0.75% in a further attempt to discourage purchases of Swiss francs. What we believe was so shocking about the move was that the SNB had continuously and recently committed to maintaining the floor. Many Swiss investors and businesses had made investment decisions based on this commitment.

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Europe’s Banks – Great Expectations or Groundhog Day?

Man on pedestal with binoculars and blue sky outdoorsConsensus expectations for earnings in the Eurozone are reaching new highs, with Earnings Per Share (“EPS”) growth expected to be 15% in 2015. To be fair, we have heard bullish forecasts like this for a number of years now. While 15% may seem a little rich to the cynics, there remains a good possibility that 2015 may actually be the year when double-digit EPS growth arrives in the region. However, dig a little deeper and a high percentage of this growth may be attributed to expectations for a stellar year from European Banks – so can they deliver this year?

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