The last time the ECB announced an unexpected twist to its bond buying program was on May 19, 2015 when it informed the public that "the central bank would moderately front-load its purchases in its quantitative easing program because of the seasonal lack of market liquidity in the summer."
As a reminder, this ended up becoming the latest ECB scandal, because as was revealed, the real announcement took place 10 hours earlier by ECB's council member Benoit Couere in private to a select group of hedge funds who were aware of the bank's plans half a day ahead of the general public, and as a result proceed to short the EUR on the news making millions in profit on what was effectively an ECB leak. Specifically, in his closed-door speech to a handful of billionaire money managers, Coeuré said that "The Eurosystem is taking this into account in the implementation of its expanded asset purchase program by moderately front loading its purchase activity in May and June."
We covered this in detail, and the asset reaction - most notable in the EURUSD - was as follows:
Then moments ago, as part of its quite stale and otherwise irrelevant minutes of its September 2-3 governing council meeting, the ECB did precisely the same, announcing that as part of its ongoing open-ended QE program (which the ECB expects will be implemented fully by September 2016 "or beyond") it would frontload purchases between September and November because, you guessed it, volatility once again declines in December. From the minutes:
Turning to the execution of the public sector purchase programme (PSPP), lower liquidity had become more apparent in some market segments, for example for supranational bonds or in smaller jurisdictions as well as at the very long end of the curve. With regard to the pace of purchases under the APP, the ECB had undertaken – as would be published on Monday, 7 September 2015 – purchases of €51.6 billion in August. Given the modest frontloading of purchases in previous months, the Eurosystem had now bought assets amounting to, on average, around €60 billion per month over the first six months of the APP. Purchases under the third covered bond purchase programme (CBPP3) had amounted to €7.5 billion in August, with the book value of CBPP3 holdings having stood at around €111.5 billion at the end of that month, and with primary market purchases amounting to a share of 17.9%. With regard to purchases of asset-backed securities (ABS), the Eurosystem had bought €1.3 billion of such securities in August, bringing the book value of holdings under the ABS purchase programme to €11.1 billion at the end of that month, with 27.2% purchased in the primary market.
From September to November 2015, purchases under the APP would again be somewhat frontloaded to prepare for the expected decline in market liquidity in December.
In other words, as previewed before, both Japan and Europe which the market widely expects to boost their QE in the coming months, are running out of sellers of securities, which in turn is manifesting in "lower liquidity" especially "at the very long end of the curve." Which means that as part of the QE expansion by the Japanese and European central banks, the two may have no choice but to once again expand the universe of securities they will monetize.
More amusingly, just like the Fed will never hike in December ahead of GDP-crushing winters, we now know that the ECB will likewise never boost QE ahead of either the summer or the winter: after all, one has to consider European vacation timetables.
Finally, while today's announcement was a surprise, looking at the reaction in the EURUSD...
... it was a mere fraction of the 100+ pip tumble in the EURUSD the first time the ECB announced a comparable frontloading in May. Almost as if the market no longer cares what central banks are doing...