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ECB taper talk jolts markets

Wednesday, October 05, 2016 - 01:53

The prospect of the European Central Bank eventually winding down its bond-buying stimulus programme has rattled investors. As David Pollard reports, some are wondering whether the asset-buying stimulus programmes that have buoyed markets across the globe are reaching their limits.

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If how to get euro zone growth back is one head-scratcher, then now there's another: why would the ECB even think of easing off the taps of its QE programme? One media report saying it's thinking of 'tapering' its bond-buying greeted with some scepticism. SOUNDBITE (English) OANDA SENIOR MARKET ANALYST, CRAIG ERLAM, SAYING: "Personally, I think these reports are a little bit unfounded. I think if they are discussing tapering I don't think they're discussing it in the short-term. This is probably more a long-term objective for the ECB and maybe the markets are getting a bit carried away at this stage." Carried away enough to spike bond yields, slide gold to its biggest one-day drop in three years, and send a chill through share prices. The report suggests the current 80 billion euros a month programme could be cut by 10 billion a month. Even before its end date in March. SOUNDBITE (English) OANDA SENIOR MARKET ANALYST, CRAIG ERLAM, SAYING: "You've got to hope they've got another ace up their sleeve because this economy is nowhere near ready to be seeing less accommodation. What they need in reality is more accommodation." The ECB says it hasn't discussed the issue. But traders remember how 2013's US Fed-induced 'taper tantrum' rocked markets. Some ask whether this report could be a bid by the ECB to add more pressure on euro zone governments for fiscal easing. Either way, many see a limit to what QE and low interest rates can do. SOUNDBITE (English) OANDA SENIOR MARKET ANALYST, CRAIG ERLAM, SAYING: "We are at the lower bounds with these right now, it would seem. So maybe they've got to just get a bit more creative with their policy tools in order to find ways to stimulate the euro area and hopefully see the economy turn more of a corner." ECB boss Mario Draghi confounded the markets when he told the bank's last policy meeting that extending its current QE scheme had not been discussed. There's less of a puzzle over low rates: they're here to stay, the ECB's chief economist said on Tuesday, until inflation gets back to target.

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ECB taper talk jolts markets

Wednesday, October 05, 2016 - 01:53