Tues, MAR 25th, 2014
“European Central Bank policymaker Jens Weidmann told MNI that the bank could buy loans and other assets from banks to lift the euro zone economy and that negative interest rates would help counter a higher exchange rate. His comments did not have an immediate impact on the market, but speculation that the ECB might ease monetary policy further has been a key driver behind this year’s rally in euro zone government bonds, particularly the lower-rated ones. ECB easing would keep yields on top-rated bonds at ultra-low levels and prompt many investors to buy riskier assets to maximize their returns.”
This is an important and noteworthy data point, yet the financial press seems to be treating it like it’s page 4 news. In my view this demonstrates how far we’ve come from the depths of the euro crisis. Recall, Germany’s Bundesbank has been the staunchest critic of any form of monetary/credit easing by the ECB.
Of course, Weidmann’s comments certainly do not imply that a QE-type program for the ECB in the bag – I am still skeptical, particularly given that yields in the periphery have calmed down and stabilized, and many economic indicators are bottoming or turning up. In other words, at present it doesn’t appear that the euro zone needs QE. That said, the significance lies in the notion that if a QE-type program is needed – if severe market dislocations return – the ECB may have more latitude to act.
Jason L. Ware, MBA
Market Strategist, Chief Analyst
Albion Financial Group
(801) 487-3700; (877) 487-6200