It’s ECB preview season and it’s going to be a confusing one.
Will Draghi announce quantitative easing on Thursday?
That depends on who you ask, but it also depends on how you define QE.
Some people are only defining quantitative easing as buying government bonds. Others define it as any unsterilized asset purchase, so ABS purchases qualify. Talking with traders, the vast majority use ABS purchases and QE interchangeably, so ABS buys = QE.
But it’s still murky. In a widely circulated note earlier this week Deutsche Bank forecast ABS buying on Sept 4. They called this “private QE” in an attempt to be more clear. They also said that government bond purchases are a long ways out. Zerohedge interpreted that with a headline saying it “crushes the idea of upcoming QE” and that “the ECB will not announce outright QE any time soon.”
MNI was just out with a headline saying there may not be a consensus for a QE announcement next week. They meant ABS, which they also called “limited QE”.
The problem is that markets move on headlines, so when one says “No QE” the market goes bonkers buying euros but inside the story it says the ECB bought ABS and there’s a massive whipsaw. Meanwhile someone else says “ECB announces QE” and someone thinks that means government bond buying and hits the panic button. The point is: There is some serious scope for confusion here.
ECB QE glossary of what we have so far:
“Private QE” = ABS purchases
“Outright QE” = sovereign bond purchases
“Limited QE” = ABS purchases
QE = suddenly undefined but most consider it as a central bank taking any assets on its balance sheet.
