Draghi Buys Bonds, Fed Buys Time
ECB president Draghi has succeeded in reducing the relevance of the Bundesbanks opposition to bond purchases by making bond-purchases dependent upon ESM conditionality. And by integrating the conditionality of the ESM/EFSF plan into the much-needed bond purchase program, Draghi has also firmly sent the ball back into court of national governments.
There is no 3rd LTRO, but there is a 3rd bond-purchase program, with conditionality, duration and lack of ECB seniority (ECB will stand alongside other bond buyers in creditor hierarchy).
The ECB unveils bond-buying program in secondary market called Outright Monetary Transactions (OMTs), which will be conditional upon the candidate countries following the austerity program under the ESM, in conjunction with the IMF and the EU (Troika). The OMT will focus on 3-year government bonds, with no quantitative limits and will remain fully sterilized. There are no yield-caps in the program.
The launch of the OMT program shall depend on countries formally requesting aid from the existing rescue fund (EFSF/ESM). This implies that not only the ECB would suspend bond purchases of nations failing to meet the EFSF/ESM, but may also means selling those bonds.
EURUSD makes its 4th consecutive weekly gain--the longest winning streak since October 2010. The pair is testing a 12-month trendline resistance (1.2635), a beak of which brings back the June high of 1.2745. Support is rising to 1.2450, resting along the July trendline foundation. This should likely keep EURUSD cemented above the 1.24, while remaining confined between its 100-DMA and 55-DMA of 1.2595 and 1.2395 respectively.
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No September QE3
Todays 5-month high in August ADP of 201K supports our stance that no QE3 will take place this month. The 7-year high in prices paid component of ISM manufacturing presented the energy argument against further monetization of debt for now.
The various US national and regional business surveys have shown stabilization recently, with the services ISM continuing to avoid a double dip below 50. Services ISM hit a 3-month high of 53.7 in August while Philly Fed survey improved to -7.10 in August from Junes -16.6.
We may not see the next meaningful decline in equities until both the manufacturing and services ISMs fall below 50 and extend their fall below 45.0. We mentioned in July that the Leading Economic Indicators index would have to post a monthly decline of 0.6 to 0.7% in order for it to be accompanied with sufficient macroeconomic deterioration and escalating bearishness in equities. Such deterioration may have to wait until Q4, which is a fitting time for markets to demand additional QE from the Fed.
The Fed may have to act at its October meeting, when pre-election market volatility is expected to escalate, especially in the event of a close race presenting the argument that uncertainty equals volatility.
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have other objectives. Given that the Fed can set up a QE4 buying longterm bonds either by op twist or directly , yields cannot go up. Of course economy will not recover, either. This however will result in deflation of available USD. Is it that what the Fed is really up to? Makes sense.
If so the Fed would not want Romney.
erratum catnip for yield capped at 2.94 in 2013 with next resistance at 1.82%
Lets say it still a pipesbag with drumbeats once the cup is full it serves for fullfilling others objects.
if groth is present then yield will keep on rising and at this time one has to understand that Bernanke has stated that until 2015 he will not raised interestrate but doesnt opt out a raise in between at my opinion. this the two swords KENDO application by holding the adversary with the long and striking with the small.
when yield will begin to attain hte 3.25 percent with low interest rate then institution that borrowed at .5% will invest in their own yielding asset and prompting a raoatriation of money flow toward the usa. The Sovereign have already poured money in the american system compared to an outflow from Europe and that shows that some operation and big annoucement are underway in 2013.
like stated last weekend the yield rose and yes daveo the 2% will be attained any time soon.
Since the decision of going long the end curve of the treasury at 30 years , government institution that have access to the fed's window have earned billions. 50 basispoint on the 30 year long treasury.
and or already formed waiting for hte ascending pattern to take form.
Ive been consistently expecting equities to hit new 4-year highs in Aug (since July) and the risk-on FX trades are on track as signaled in the last 3 editions of the Premium Insights.
Gold and silver rallies are here to stay. All details in latest Premium Insights.
My upcoming events in SINGAPORE
It is not just Zeitgeist that direct democracy political parties pop up everywhere, basically Internet social network parties, the Pirate party is everywhere , in Italy its the five star movement, all thse make enormous success in surveys.
These parties are the biggest danger to parliamentary democracy, because they are transparent and real-time. And come at almost no cost. basically social network parties resemble the ancient northern Thing place, the vote is for decisions, not for prospects, not for political progammes, and certainly not for personalities. "faces and voices" are insignificant. Of course there are model laws, or exactly, scalability.
In plain terms, what works perfectly with 100 voters at a Thing, may not work with a million voters in a social network. This laws of scale are more a topic for applied mathematics, but imho the way political decisions are made will change pretty soon, with real time communication structures such as social networks