The market didn’t really get a chance to digest the weak take-up on the TLTRO because of all the Fed and referendum talk but it’s quickly coming back into focus.
Barclays is out with a note to clients saying an ECB sovereign QE program is now its baseline — most likely by Q1 2015.
They say Draghi’s stated intention to expand its balance sheet 1 trillion euros is unlikely to be achieved via TLTROs, ABS and covered bond purchases. They also say the risk of a too-long period of low inflation is worse than the ECB projections imply and that growth risks are rising.
For me, the December TLTRO is now huge. Some banks said they’re waiting until after the stress tests to get involved. If the Dec TLTRO headline cross and there isn’t a much stronger takeup, the market will immediately price in QE and the euro will plunge.
Draghi thinking about his 1T euro balance sheet
