Lots going on this morning. Let’s break it down.
- The new ECB bond buying program has markets excited across the pond. Here’s a break-down from The Guardian:
OK, Draghi is now reading the statement outlining the new bond-buying programme — Outright Monetary Transactions.
Here are the key points:
“Strict and effective conditionality is an essential part” of the plan, he says. Either a full-blown economic reform plan, or an “Enhanced conditions credit line – ECCL”.
What does this mean? Basically, that any country who asks the ECB to help ease its borrowing costs must agree to an economic reform programme in return. Not necessarily as regimented as the bailout plans enforced by the Troika – it sounds like ECCL will be bailout-lite.
The ECB governing council will then decide how much debt to buy.
2) Coverage: the ECB would buy bonds of between 1 and 3 years of maturity.
3) Seniority — the ECB will be treated alongside other bond holders, rather than being the most senior creditor. This is called “Pari passu”
- This plan is not really a big change. But remember, QE works in Europe because the ECB is really funding the government’s since the private demand isn’t there. This is very different from the USA where funding/demand is not the concern. But it also comes with continued austerity and doesn’t fix the root problem. So the contained depression in Europe will continue.
- The ADP Employment report was strong at 201K. This has everyone scrambling to upgrade their estimate before tomorrow’s NFP figure. It should be decent and certainly not consistent with recession.
- Jobless claims have pretty much flatlined. It’s another sign that the economy is also flatlining. But flat is better than contraction.
- The ISM Services report came in better than expected at 53.7. This is an improvement over last month’s 52.6 reading. New orders were down slightly, employment was up and production was down. All in all, it’s not bad and it’s not great. But again, this is a non-recessionary data point.