Reports emerge on ECB easing options

Market Movers

• With the US market closed due to Thanksgiving, today is set to be a relatively quiet day on the data front.

• At 10:00 CET, EU money supply figures (M3) for October are due to be released. We generally expect the recent strong growth to continue but are also waiting to see if the decline in growth in loans to non-financial corporations in September continues. This is one of the transmission mechanisms of the ECB’s QE purchases and if the upward trend has reversed, this will be a concern for the ECB.

• Swedish trade balance data and financial market statistics are the highlights in Scandi space today. See Scandi Markets.

Selected Market News

Reports emerge on ECB easing options. European fixed income markets rallied and the EUR weakened yesterday amid reports on potential ECB measures to be announced at the key meeting on 3 December. The ECB seems likely to expand the scope of its QE programme by including a wider range of assets, potentially purchasing bonds issued by towns or regions, while even buying non-performing loans of banks’ balances are said to have been considered, according to Reuters (link). Furthermore, a two-tiered deposit rate system is being discussed, whereby banks would be charged a different deposit rate depending on the level of excess liquidity deposited. This could allow a bigger deposit rate cut, while cushioning the impact on banks’ profits. See the Fixed Income and FX sections on page 2 for further comments.

Quiet day in the US. Trading volume was low and the major stock indices were broadly unchanged, amid a flood of data which seemed to confirm the picture of a US economy growing at moderate pace and leaving expectations for a December Fed hike unchanged. Durable goods orders rose a healthy 3.0% in October, though much of the increase appeared driven by a rebound in aircraft orders. Initial jobless claims fell 12k to 260k, i.e. close to the cycle-low of 255k reached in July. New home sales rebounded by 10.7% in October, while the University of Michigan sentiment indicator was revised lower to 91.3 from the 93.1 flash estimate, presumably due to the impact of the Paris terrorist attack.

Asia stocks push higher amid signs of easing geopolitical tensions. Nato officials yesterday called for ‘calm and de-escalation’, while US President Obama agreed with Turkish President Erdogan on the importance of such an event not being repeated. This morning, the key Asia stock indices are all trading in green.

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