Euro Tumbles On Report ECB Is "Concerned And Divided" Over End To QE

Tyler Durden's picture

Talk 'em up, then slam 'em down.

The familiar pattern of "clear and transparent" central bank communication was on full display moments ago, when following months of build up to an ECB taper announcement, the ECB used its favorite mouthpiece, Reuters, to "trial balloon" that an ECB decision over whether to announce a firm end-date to the central bank's bond buying could be "put off until December" as a result of disagreement among the ECB council stemming from "concern over Euro strength" which is leading to "uncertainty and divide within the council."

As a result, some within the ECB want to be able to "extend or expand" buys if needed, in other words if the EURUSD rises too far above 1.20.

The highlights from Reuters:

  • CONCERN OVER EURO STRENGTH IS LEADING TO UNCERTAINTY AND DIVIDE WITHIN ECB COUNCIL - SOURCES
  • ECB POLICYMAKERS DISAGREE ON WHETHER TO SET FIRM END-DATE FOR BOND-BUYING PROGRAMME IN OCT - SOURCES
  • SOME ECB RATE SETTERS WANT TO BE ABLE TO EXTEND OR EXPAND BUYS IF NEEDED - SOURCES
  • SOME ELEMENTS OF ECB DECISION COULD BE PUT OFF UNTIL DEC - SOURCES

And the full report:

European Central Bank policymakers disagree on whether to set a definitive end-date for their money-printing programme when they meet in October, raising the chance that they will keep open at least the option of prolonging it again, six sources told Reuters. A stubbornly strong euro, with its dampening effect on inflation, is driving a rift among ECB policymakers, the sources on the ECB’s Governing Council with direct knowledge of its thinking said.

 

The split is between ‘hawks’ -- led by richer, northern countries such as Germany -- who are ready to wind down the 2.3 trillion euros bond-purchase programme and ‘doves’ who simply want to reduce its monthly pace, the sources said.

 

This is raising the likelihood that they will seek a compromise solution on Oct. 26, whereby any end-date for purchases would not be set in stone, or that they will put off part of the decision until December, the sources added.

 

The main point of contention is the euro’s continued appreciation against major currencies, which is threatening to curb inflation in the euro zone by making its imports cheaper and exports dearer

In immediate kneejerk reaction, the EURUSD tumbled from 1.1990 to as low as 1.1960 as traders scratch their heads just how will the ECB extend QE indefinitely when it is running out of bonds to buy, and wondering if the ECB will pull a BOJ and buy ETFs next as Reuters also "trial ballooned" back in 2016.

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Five Star's picture

The Eurozone still hasn't added a single net job since 2008. Meanwhile the population has grown by 6 million.

http://thesoundingline.com/eurozone-still-fewer-people-employed-2008/

 

Ghordius's picture

interesting comment, interesting link

so the whole mess, the whole crisis of 2008 is nearly over?

that graph's line... looks steep. pardon me, but I get a huge smile looking at that graph. you don't expect it to hit that red line and then stop there, do you?

Five Star's picture

If it hits the red line, it still has 6 million to go before it makes up for the population growth. By the time any real economic advancement sets in, the next crisis will have already arrived. EConomies don't expand forever, rarely for longer than 8 years. The EU completely missed this entire cycle

ilion's picture

There seems to be fairly strong selling pressure around 1.2000 level.

Haus-Targaryen's picture

Ghordo, 

Currency is simply a tool to represent one's labor and is thus used as a means of exchange.  The ECB "prints" euros.  However, the act of printing euros does not represent labor as they were simply created and not "earned" into existance.  The mechanism dilutes the value of everyone else's labor and transfer their labor (represented by euros) to other institutions.  E.g., the ECB steals €60 billion worth of the EMZ's various citizens labor every month and transfers it to massive financial institutions and governments. 

How does this make you feel?  A economic union created for political purposes, defying economic realities is only now stable not organically, but simply by the ability of its central bank to steal from its own population. 

Let that sink in for a bit. 

 

Ghordius's picture

Haus, I do not subscribe to those theories, monetary or otherwise, that reduce everything to labour, or "earned"

for a simple reason: they are useless in describing the real world, and even more useless in forecasts

"E.g., the ECB steals €60 billion worth of the EMZ's various citizens labor every month..."

excellent example for the uselessness of those theories. you are describing QE. whereas the ECB's main 6 national banks are taking sovereign bonds out of the hands of (mainly banks, note) some and putting freshly "printed" IOUs instead, which...

... in the greater scheme of things is just the exchange of one form of IOU with another

stealing? really? meh

Gilnut's picture

Haus, I do not subscribe to those theories, monetary or otherwise, that reduce everything to labour, or "earned"

 

This is precisely the economic thought process that is driving the current "modern" world eCONomy, and why fiat no longer truly represents "money" (money in it's historical sense, not modern).

YUNOSELL's picture

The Central Bankers are playing a Planet-Earth sized game of Monopoly with each other, but their rules are a bit different where the money supply keeps increasing after every full turn -- The properties are almost all bought up now

YUNOSELL's picture

Ghordius -- they can only be called IOUs if the borrower has the intention to repay. Repayment is absolutely impossible now.

Ghordius's picture

so you are suggesting that a promise stops being a promise just because who promises has no intention to repay?

the borrowers, in this case, are the sovereign countries that issued that debt

promises, debt, IOUs are still promises, debt, IOUs, whatever, usually paper with something written on it

as a reminder, I apply Austrian School logic to my discussions here about monetary matters

Haus-Targaryen... well, he does not

nope, debt is, most of the times, a piece of paper. valued something by somebody... or not. and that changes, from time to time

Haus-Targaryen's picture

In a fiat monetary system, the only thing preserving a currency's spending power is labor of those using it. If there is no labor supporting it the currency's value returns to zero.

Its no different than your grandkid's scribbling 1€ on a piece of paper when playing "cashier" with one another.  

Not quite sure you are a follower of Austrian economics.  I think you like to cherry pick the parts you like (aka that facilitate the continuation of the euro) and discard the parts you don't. 

Ghordius's picture

you seriouly think that your comment is even remotely "Austrian"?

you are "eurozone labour", btw. you work here. you spend for your family in EUR

are you denying... your own reality? like your child's diapers, that will be bought in euros from the near store?

when you bought your (Japanese) car, you paid in euros, which the (Japanese) manufacturer accepted, didn't he?

and so on

Haus-Targaryen's picture

Correct. 

I am eurozone labor, if everyone began refuging to accept euros for their labor and wanted glitter-sprinkled monopoly money THAT would become currency. It has little to do with some Europäische Einheit fanatic in FFM telling me this is money and it has value, it derives it value by me being able to trade my labor (the currency I get from working) in exchange for diapers, my Japanese car, etc., etc., The value of fiat, which isn't back by anything save the confidence of the people using it is their labor.  

E.g., people are willing to exchange their labor (and the goods stemming therefrom) for this currency, and whether it is euros, dollars, or rainbow-themed glitter-infused princess-sparkle vouchers, the intrinsic value of the currency in paper form is the paper its printed on and in digital form; zero. 

When these dollars, euros or rainbow-themed glitter-infused princess-sparkle vouchers are simply printed you are diluting the value of everyone else's labor (this is called inflation) and is a byproduct of the monetary supply and the velocity of money.  

I'm shocked this is even being debated.  

 

Ghordius's picture

and? you live in Germany, where you can exchange those euros in gold, silver, bitcoin or any of the private currencies that are allowed to exist. do it

your argumentation is still not "Austrian", btw

and does not touch even for a moment anything that has the word "balance" in it, from balance of payments to balance of trade, etc. etc., not to mention balanced budgets

Haus-Targaryen's picture

The irony of someone supporting "balanced" anything while simultaneously supporting monetary-base expansion to fund government deficits is palpable.  

Your view on anything monetary related is simply: "Does this hurt or help the euro as a currency to survive another day?" If it hurts it you are against it, and fashion your arguments and ideals in a way to justify this belief, and if it helps it, you do the same. 

I often wonder if you really are Schäuble, someone who obviously knows his stuff, but puts idealism of the "European Experiment" ahead of economic reality, hoping and preying to God it somehow works itself out. 

Ghordius's picture

wrong. I do not support that expansion in order to fund government deficits

try the consequences of "not doing it"... after the FED "did it, big style"

further, "balanced budgets" means no government deficits, and so no further sovereign debt, which...

... means also, eventually, as ZH's Tyler notes, "nothing to QE", and so no further expansion possible

Haus-Targaryen's picture

The consequeces of "not doing it" is price discovery. 

But you are the "Austrian" economist. So I'll defer to you and your seemingly flexible definition of how once ascertains price discovery when the value of the money used to determine price is impossible to ascertain. 

Haus-Targaryen's picture

So why do you go to work everyday? Do you do it to stare at numbers on a computer screen and say to yourself "Gee, those sure are swell."

You go to work to get currency, which you use, or have the ability to use to acquire goods and services produced by others.  This isn't "theory" in any way; it is reality and is much a theory as gravity is. 

If you don't "subscribe" to this, you have completely divorced yourself from reality, and given your steadfast support of the euro as a currency union, doesn't surprise me all that much. 

Currency in its current digital form only has one use -- to acquire goods and services with.  In paper form, its principal use is to acquire goods and services but can also be used as paper, something to burn, artwork -- but these uses of currency are divorced from the currency itself and are uses of the products the currency is printed upon. 

You live in a state of denial my friend.  Perhaps it should apply for EU and EMZ membership. 

Ghordius's picture

rubbish. you, for example, go to work because you have a good job in the eurozone and you are becoming a father

the second reason being the best of all, of course

meanwhile, this same eurozone in which you allegedly live and work, and are building a family supported by an excellently paid job, exports more then it imports, and lends to outsiders more then it borrows from outsiders

try this, before you start with "you live in a state of denial, my friend"

Haus-Targaryen's picture

Not quite sure what you are talking about here, as it has no relation to the subject at hand. 

I go to work to get paid (you're right) and I get paid very well (again you are correct).  But what does it mean to get paid "very well?" How do you measure "very well"?  Is it simply the numbers that get transferred into my account at the end of the month? If that's the case I should quit my job here and move to Venezuela, where the numbers going into my account, even after taxes are multiples higher than here.  I would be a millionaire overnight. 

Ahhh, there is the rub.  You see "very well" is measured by the amount of goods and services I can acquire with the numbers transferred into my account.  (E.g., their REAL value, vs nominal value). 

When the ECB creates euros to keep Italy solvent, it is creating nominal wealth, not real wealth.  It creates nominal wealth at the expense of real wealth. This is just a fact, you don't have to like it, but it is the way it is. 

Your central bank is only able to remain being a central bank if it creates nominal wealth by destroying (diluting) real wealth.  

 

Ghordius's picture

it's still "dilution" leading to "inflation of prices", isn't it?

did you have a look at the eurozone's CPIs? which include foood and energy, btw?

facts tend to be tangible, you know? show me those higher prices, then

Haus-Targaryen's picture

Have you seen the value of the EUR relative to say, the USD since the ECB kicked-off its QE program? 

1.35 down to almost parity. 

At its most extreme almost a 33% decline.  But hey -- that's not a big deal. 

Ghordius's picture

lol. and what exactly do you import from the US which has changed your basket of goods' composition?

now, what exactly has changed in the eurozone's import/export balances?

ah, I forgot, you don't care about those "balances". nor import/export stuff, eh?

Haus-Targaryen's picture

Student loan debt is one thing, I'd love to purchase a pickup truck on the cheap and import it, I'd love buy my wife a nice new car at a steep discount due to FX reasons like we Amis did in the 80s with German cars. 

But alas, the solvency of Italy is more important than me preserving and protecting the value of my labor. 

The "European Experiment" must continue. FORWARD SOVIET! 

Ghordius's picture

that "forward soviet" just reminds me of that phenomenon of old, the SovietDollar, aka "Eurodollar"

so basically you'd love to buy American on cheap? and pay back that student loan debt you are fleeing from?

and this... "because of FX reasons"? those "reasons" are usually a tad temporary, you know?

exception: when the Global Reserve Currency is involved. but, again, you don't seem to see the difference

in a way, you are asking to be paid in Global Reserve Currency units... in a time when the issuer is on the rise

for that, a time machine and a ticket to the US would be needed

Haus-Targaryen's picture

Yeah, I mean, why should I be pissed about the ECB increasing the cost of imports to keep a nation I care nothing about solvent? 

I want to be paid in a currency that isn't being constantly diluted for the benefit of others in far-away lands.

GodHelpAmerica's picture

It is stealing from the masses if you take this line of thinking forward. As seen in the US, the vast majority of that currency was used, not to lend, but instead to bid up asset prices--hence the problem of widespread asset price inflation. When asset prices are inflated, costs rise for the average European/American. Inflation IS a surreptitious means of stealing wealth from the masses. Also the non-dispersive nature of QE concentrates wealth amongst a minority; those closest to the monetary spigot are greatly enriched, while all others suffer, trying to maintain their eroding standard of living.

Ghordius's picture

now, that's better. in the sense that I can accept that point of view, and that figurative "stealing"... in the American case

you could stop that, you know? true, it's still the Global Reserve Currency, but it's also your currency

all you need to do is the unthinkable: stop increasing your sovereign debt, i.e. balance your budget

note, in this, ZH Tyler's refrain: "soon the ECB won't have anything to buy"

Haus-Targaryen's picture

I love Germans defending the euro and the EU. 

If the Americans do it = stealing 

If the ECB does it = not stealing. 

What kind of drugs are you on? 

Ghordius's picture

you don't see the difference, eh?

"stealing" in the Global Reserve Currency is... "stealing" from the whole world

something you'll find Chinese, Japanese, Russians and Europeans etc. all nodding about

again: the effects of the dollar's "increase in stock" are felt on the whole globe, on the whole planet

the effect of the same increase in let's say Russian Rubles are felt mostly in Russia only

Haus-Targaryen's picture

So then, by this logic, completely cool with me being irate as fuck that the ECB is printing Euros for the exestential (<-- focus on that word) benefit of a few key states in the EMZ, when I am German labor, and thus the value of my time is diluted monthly. 

Ghordius's picture

your "existentials" have increased in price, in euros?

your units of labour are being paid less in units of "existentials", in euros?

again: if you were an American provider of labour in the US, your argumentation would be valid, for me

but trying to do the same argumentation in the eurozone is simply confusing realites with wishful thinking

Germany today isn't the US of the 20th Century. you can't compare apples with oranges

Haus-Targaryen's picture

Sovereign debt in Spain, Italy, Portugal and France have exploded in price.  Yes. 

Should these prices return to their 50 year averages, you can kiss not only your cute little currency union goodbye but your pension and anything you have saved in this system. 

Thus the ECB prints and prints and prints, not because it helps anyone, but it simply delays the inevitable. 

Ghordius's picture

btw, I am defending the EUR. 19 countries participating to it

you are intruding that EU in it. that's 27 (and one exiting) countries doing a different thing

how often do I have to tell you that? if you were a bot, you'd have that stored in your logs and memory

Haus-Targaryen's picture

I said ECB.  I am not even discussing the EU at this point, nor have I in this entire conversation.  

I am tearing your ECB and "European Unity" ideals apart which back the institution and thus the currency underlying it -- you're engaging in cognitive dissonance, given you are having to deal with facts that contradict your world view. 

Ghordius's picture

"I love Germans defending the euro and the EU."

"I am not even discussing the EU at this point, nor have I in this entire conversation"

and now, "I am tearing your ECB and "European Unity" ideals apart "

meanwhile... 80% of that QE is done by the national banks of the eurozone, among them the BundesBank

look, Haus, you studied formally, in an university or something that stuff of a couple of years

if that was anything with "monetary" written on it... ask for your money back

my world view... serves me well. does... yours?

Haus-Targaryen's picture

Well, I make a perverse amount of money (or I earn the ability to acquire a peverse amount of goods and services). 

Oh, various national banks can print euros to paper over their deficits, why did Greece need those bailouts again, given this fact? 

/sarc 

My ability to distinguish between nominal and real value, something obviously lost on you is killing me right now. I'm surrounded by morons who think earning 7€k netto a month and paying €4k a month in rent is better than earning €5k a month netto and paying €1k a month in rent. It amazes me seemingly smart people can be so stupid.  It also happens that these people would agree with you on almost everything. 

I'm quite comfortable in my monetary education.  It just so happens people that think like you run monetary policy right now and make price discovery (for say, the appropriate value of Italian sovereign debt) impossible. 

If people like me don'T exterminate your world view, market fundamentals most definitely will.  

 

Ghordius's picture

problem is, you don't understand my "world view"

again, my suggestion is to study Austrian School economics. starting with Carl Menger

Haus-Targaryen's picture

Austrian economics and belief in the euro as it is currency constructed and maintained are mututally exclusive viewpoints.  

Pick one. 

ludwigvmises's picture

Why do you care about Europe so much? Would you enjoy if European smartasses came to the US and told us what to do and how to live?

silverer's picture

"...for a simple reason: they are useless in describing the real world, and even more useless in forecasts"

It's not the purpose of money to describe the world, but to allow interchange between people of goods and services. That the government manages this, and not free markets, is what makes everything so confusing. Do not think for a minute that engineered inflation is not theft. It most certainly is.

silverer's picture

"Currency is simply a tool to represent one's labor and is thus used as a means of exchange."

Correct. Notice what the government has done to your unit of measurement of labor. In the case of the US unit, they've made your grandfather's fathers work worth only $0.08 on the dollar. As the government continues to steal and squander hard work and productivity, I think it's going to get "testy" out there.

ludwigvmises's picture

It "tumbled" 20 pips?

yogibear's picture

LOL, it's moar QE until there is a huge economic reset/

Haitian Snackout's picture

How bout some retro photos of people holding "Maas Trick" signs?

shizzledizzle's picture

End of QE... LOL! Check's in the mail I'm sure. 

silverer's picture

It's a good thing it's only about money. Because history shows the typical solution to money issues is war. And everyone seems ready for that, don't they? So this should be solved and we can get on with happiness.

zvzzt's picture

use a 1 nano-second chart next time, even more "impressive"....

 

for f-sake.... 40 pips?! 

Last of the Middle Class's picture

They'll continue QE until people with pitch forks bust down the front door. Is there anyone who doesn't know this?