ECB Extends QE, Tapers Purchases, Keeps Rates Unchanged

The ECB kept interest rates unchanged and as widely expected altered their QE program to make it longer for less.  The central bank announced that their bond purchase program will be extended from March to September 2018, but they will taper the purchases to EUR 30 billion from EUR 60 billion per month.  Stocks initially moved higher in tandem with bonds, while the EUR/USD moved lower.

ECB will still extend its balance sheet by a further EUR 180 billion, so monetary policy will not only remain expansionary, it will be even more expansionary than now, with Draghi only gently taking the foot off the accelerator.

Separately, Eurozone M3 money supply growth accelerated slightly in September, with the annual rate nudging up to 5.1% year over year from 5.0% year over year in the previous month. At the same time lending to non-financial corporations rose 1.5% year over year, up from 1.4% year over year in August, while the growth rate for lending to households remained steady at 3.1% year over year.

German Confidence Declined

German GfK consumer confidence fell back for a second month with the November projection and the headline reading unexpectedly dropped to 10.7 from 10.8, against expectations for a steady number. The full breakdown for October showed price expectations falling further into negative territory, while business expectations jumped higher. Despite this income expectations fell back, which suggests wages are still sluggish, despite the tight labor market.

Central Banks Were Busy

Norges Bank left its key policy rate unchanged at 0.5%, as was widely expected. The statement said there was “a continued need for expansionary monetary policy” with capacity utilization seen “below a normal level” and inflation expected to remain below 2.5% in the coming years.

The Riksbank left the repo rate unchanged at -0.5%, as had been widely anticipated. In the statement, the central bank said that monetary policy “needs to remain expansionary for inflation to continue be close to 2 per cent.” The Riksbank also stated that purchases of government bonds will continue during the second half of 2017, as set out in April of this year.