“QE already Working” Says IMF Lagarde; Ho-Hum Details Announced; Gold the Place to Be

Courtesy of Mish.

Today, ECB president Mario Draghi announced his much awaited QE program that will allegedly save Europe from the imaginary perils of price deflation. See Deflation Bonanza! (And the Fool’s Mission to Stop It).

Stocks are up a bit, the dollar is up a bit, the yen is up a bit, and gold is up a bit. Oil is down a bit.

The details are more or less along the lines most thought, not the celestial “big bang” that everyone hoped.

ECB QE Press Release

Here are a few snips from the ECB Press Release on Asset Purchases.

• ECB expands purchases to include bonds issued by euro area central governments, agencies and European institutions
• Combined monthly asset purchases to amount to €60 billion
• Purchases intended to be carried out until at least September 2016
• Programme designed to fulfil price stability mandate

The programme will encompass the asset-backed securities purchase programme (ABSPP) and the covered bond purchase programme (CBPP3), which were both launched late last year. Combined monthly purchases will amount to €60 billion. They are intended to be carried out until at least September 2016 and in any case until the Governing Council sees a sustained adjustment in the path of inflation that is consistent with its aim of achieving inflation rates below, but close to, 2% over the medium term.

The ECB will buy bonds issued by euro area central governments, agencies and European institutions in the secondary market against central bank money, which the institutions that sold the securities can use to buy other assets and extend credit to the real economy. In both cases, this contributes to an easing of financial conditions.

With regard to the sharing of hypothetical losses, the Governing Council decided that purchases of securities of European institutions (which will be 12% of the additional asset purchases, and which will be purchased by NCBs) will be subject to loss sharing. The rest of the NCBs’ additional asset purchases will not be subject to loss sharing. The ECB will hold 8% of the additional asset purchases. This implies that 20% of the additional asset purchases will be subject to a regime of risk sharing.

Six Elements of Decision

Digging a little deeper, here are Six Key Elements of ECB Decision.

1. Starting in March the ECB will buy 60 bln euros a month in national bonds and agency bonds. The amounts will be driven by the “capital key” which corresponds roughly to the size of the economies. That means that Germany, France and Italy will be the largest buyers.
2. The risk will remain largely with the national central banks, but the risk of agency purchases will be shared collectively. Agency bonds will amount to 12% of the assets being purchased. The ECB argues that by controlling all the design features and coordinating the purchases, it has “safeguarded the singleness of the Eurosystems’s monetary policy. “ Market participants may disagree.
3. The program will run through September 2016, but ECB clearly keeps door open:  the purchases “will in any case be conducted until we see a sustained adjustment in the path of inflation.”
4. The asset purchased will be investment grade, but “some additional eligibility criteria will be applied in the case of countries under an EU/IMF adjustment program. This is subtle but important. As long as Greece, Cyprus and Portugal are on some program their bonds can be bought. This is also a subtle indication that the old Troika no longer exists. This is part of the signal from the European Court of Justice preliminary ruling and also the signals from the new EC.
5. Although the ECB did not cut its official rates, it did remove the 10 bp premium over the main repo rate (MRO) for the new TLTRO facility.
6. There is an issuer limit of 33%. This is why Draghi has indicated that Greek bonds could be bought after SMP redemption, which means after July.

The above courtesy of Marc Chandler of Marc to Market via TalkMarkets.

Any Surprises?…