Dour Comments By China's Leading Supply Chain Manager Reinforce Citi's View For €1 Trillion ECB QE

While the US Q2 earnings season is now largely in the history books, an interesting place to get some additional commentary on the world economy is none other than China's leading global sourcing/supply-chain management firm Li & Fung, which "supplies high-volume, time-sensitive consumer goods from an extensive global network of suppliers and distributors", which had some interesting comments on the current state of global economic developments.

Here is the summary of their latest results commentary from Deutsche Bank:

Li & Fung’s latest results yesterday offered some interesting anecdotes. The company’s performance for the first 6 months was hampered by ongoing macroeconomic weakness, geopolitical and weather events in its key destination markets (US and Europe). Price discounting remains a theme in US retail even beyond the end of June. The company also noted a reduction of foreign tourist flow by Russian tourists into Europe which is affecting retail markets there. This fits consistently well with some of the ECB’s geopolitical concerns outlined at its previous policy meeting.

In short, hardly the stuff "escape velocity" global recoveries are made of. The good news: considering the ongoing weakness in both the European and Chinese economy, this surely means, at least according to Wall Street penguins, that more easing is due any minute out of both the ECB and China. And sure enough, moments ago Citi'sGuillame Menuet saaid that the ECB will likely launch a €1 trillion QE some time in Q4.

From the note: "ECB QE: Why, When and How"

Reinforcing our QE view — The euro area recovery is struggling, as evidenced by Q2 GDP reports and Q3 surveys. Downside risks to economic activity, a still-strong euro, large output gap and persistent undershooting of its inflation target, all point even more strongly to the ECB announcing a large QE programme soon.


December more likely to September — We do not expect QE to be announced at the September meeting, mainly because of expectations that the June policy decisions will ease funding conditions further, uncertainty pertaining to the AQR and ECB stress tests, and the ECB’s hope of strong bids at the Sep and Dec TLTROs. However, we believe that the consensus underestimates the likelihood of QE in late Q4-14 or early Q1-15, and the ECB’s willingness to defend its inflation target.


€1tn asset purchase programme — Increasing signs that medium-to-long term inflation expectations are drifting lower and the need to defend its mandate and credibility will lead to aggressive action, in our view. We expect a 60/40 split between public and private sector assets, with the latter focused mainly on bank bonds and loans.


In other news, the only thing better than good news for stocks continues to be, what else, bad news.