Topic: Euro area QE euphoria is fading and the ECB is too upbeat (Read 561 times)

So it must be good then, therefore more QE? If not, more QE?

Things have been going pretty well in the eurozone since QE started to be honest. 
€/$ was getting very close to 1:1, but since then confidence has returned and it has gone back to 1.11 or so to the dollar.

The bunds yields have increased, peripheral yields are low, there is money sloshing around now!  The DAX, CAC and FTSE are all very high, QE has painted over the cracks very efficiently, until it all comes crashing down in a few years time!

From a low of 7bp on 20 April, Bund yields are up five-fold to close Friday at 37bp. Over the same period, the US 10-year gained 22bp to 2.11% and EUR/USD gained 5 ticks to 1.12.

Some easing of the worst fears on Greece is part of the explanation, but the further signs that inflation is bottoming out were also at work.

The April HICP data for the euro area showed headline inflation exit negative territory at 0.0% yoy and core inflation hold stable at 0.6%.

At the same time, the latest batch of PMI data showed a weaker rate of expansion, raising concerns on the effectiveness on QE. That the euro area QE euphoria was bound to fade comes as no real surprise.

The ECB has repeatedly warned governments that with a stronger fiscal policy and stronger efforts on structural reforms, QE would not be able to secure a firm and sustainable recovery.

The next ECB meeting is still some time away on 3 June, but by then it will be clear that the central bank may have been too quick to declare victory for QE - not so much on inflation, but in terms of real economic growth.

The ECB's staff projections look for GDP to recover to 1.5% in 2015, 1.9% in 2016 and 2.1% in 2017.

"Our own forecast is for the euro area economy to remain stuck closer to 1.5% across this forecast horizon. Come September 2016, we expect the ECB to deliver some further QE due to disappointing growth as reform remains insufficient", Says Societe Generale.

It is thus no surprise that the euphoria on the policy is fading with the realisation that combination of inflation and growth materialising is not quite what markets were hoping for, with growth likely to disappoint.

(Source: http://fxwire.pro/Euro-area-QE-euphoria-is-fading-and-the-ECB-is-too-upbeat-31928)