As commented previously [10], the reason for today's 30 point rip in emini futures from the lows hit just 4 hours ago, was a test of the ECB emergency BTFD service, today provided courtesy of Reuters which, just after the European close, gave what is ever more incorrectly called the "market" its dose of upward momentum ignition, when it reported that, in addition to the previously announced "private QE" which includes ABS and covered bond purchases, that Goldman's head of the European central bank would also go ahead and monetize corporate bonds, taking a step even further than the Fed, which at least is confined to public securities, and directly influencing private asset prices.
The reason is well-known: in Europe there is a scarcity of unencumbered public debt, something we observed years ago [11]...
[12]
... and certainly ABS [13]...
[14]
... which means that for Draghi's intervention to be felt, if only in the markets if not the economy, he will be forced to go down the capital structure until finally the ECB has no choice but to monetize equities.
Because when it comes to fixing the economy, helping the poor and "fixing inequality", nothing succeeds like artificially inflating the EuroStoxx 50 higher yet again.
In any event, here is the catalyst for today's market move [15], which Reuters attributes to "several sources familiar with the situation " and "one person familiar with the work inside the ECB, speaking on condition of anonymity" :
The European Central Bank is considering buying corporate bonds on the secondary market and may decide on the matter as soon as December with a view to begin buying early next year, several sources familiar with the situation told Reuters.
The ECB has already carried out work on such purchases, which would widen out the private-sector asset-buying programme it began on Monday - stimulus it is deploying to try to foster lending to businesses and thereby support the euro zone economy.
"The pressure in this direction is high," said one person familiar with the work inside the ECB, speaking on condition of anonymity.
Asked about the possibility of making such purchases, an ECB spokesman said: "The Governing Council has taken no such decision." The ECB's policymaking Governing Council could discuss the possibility of making such purchases at its December meeting, two of the four sources Reuters spoke to said. All four said such plans were being discussed.
The policymakers could decide at the December meeting to go ahead with the purchases, but such a step is not certain. Should the Council decide in December to proceed, the purchases on the secondary market could begin in the first quarter of 2015, one of the sources said.
The ECB began buying covered bonds on Monday, part of a private-sector asset-purchase programme that will also see it buy bundled loans known as asset-backed securities (ABS) later this year.
However, there is concern at the ECB that these measures may have an insufficient impact to help support the economy. "In the view of many Governing Council members, the economic picture has recently taken a turn for the worse," one of the sources told Reuters.
And while we await Germany to throw up all over what is a clear Reuters trial balloon floated by "one person familiar with the work inside the ECB, speaking on condition of anonymity" to see what the market reaction is to even more stimulus (as if it is unclear), here is what we said before when [16]we observed the "new normal" market drivers which have pushed the E-mini 100 points higher in the past week:
To summarize: the S&P 500 is now almost 100 points higher from last Tuesday as the global central bank plunge protection team of first Williams and Bullard hinting at QE4, then ECB's Coeure "ECB buying to start in a few days", then China's latest $30 billion "targeted stimulus", then the Japanese GPIF hinting at a 25% stock rebalancing in the pension fund, and finally again the ECB, this time "buying of corporate bonds on secondary markets", rolls on and manages to send stocks into overdrive. Even as absolutely nothing has been fixed, as Europe is still tumbling into a triple-drip recession, as Emerging Markets are being slammed by a global growth slowdown and the US corporate earnings picture is as bleak as it gets.
