Mission Intractable: ECB Bond-Buying Plan-For-A-Plan Will Self-Destruct In 24 Hours

Tyler Durden's picture

Have no fear; Europe closed and equities leaked so a quick series of European comments are more than required... Bankia, check! Bank backstops, check! ECB Bond-Buying Plan...

  • *ECB SAID TO PLAN TO GIVE GOVERNORS BOND PROPOSALS ON SEPT. 4
  • *ECB SAID TO HAVE NO PREFERRED OPTION FOR BOND PURCHASE PLAN YET

So no real idea what they are actually going to do. However!

  • *ECB SAID TO GIVE CENTRAL BANKS 24 HOURS TO DIGEST BOND PLAN

Nothing new here - and that is why the market is entirely unimpressed...

Bear in mind Morgan Stanley's view of the ECB's meeting next week:

We don’t believe that the conditions for the ECB to start buying government bonds are likely to be met already at the upcoming Governing Council meeting on September 6.

 

Clearly, the ECB will aim to decide on the parameters of the bond purchase programme at the meeting – even though we doubt that the ECB would start buying on the day or that it will be sharing the full details of the programme with us and the markets at the press conference. Instead, we would expect Mario Draghi to stay vague on the exact shape of the purchase programme for several reasons:

  • First, the ECB tends to never pre-commit to any specific policy action and will like to keep its discretion.
  • Second, the nature of the programme itself is likely to be controversial on the Council where there is likely to be a significant minority of sceptical members.
  • Third, the technical difficulties in determining the exact dose of what is likely to be a powerful, albeit also highly addictive, drug are a serious obstacle to speedy action.

Hence, Eurosystem staff might need more time to prepare and Council members more time to seek a compromise that ideally all (or at least almost all) Council members can support. At the same time, we would expect ECB President Draghi to stress the ECB’s determination “to do all it takes”. Any indication that the purchase programme is capped in size from the start would likely be viewed negatively by markets, we think.