No easy decisions


Thinking like an Italian Eurozone: Industrial production slows in Italy Crude Oil: Breaking thresholds United States: Retail Sales accelerate China: Activity data in line with expectations

Good morning,

Heading into yesterday, the positioning ahead of the TLTRO announcement went something like this: the figure only really mattered if it came in very weak (thus increasing chances of QE in January), or very strong (thus pushing QE expectations into March). Simple right?

Wrong. Decisions are almost never this simple, and yesterday’s outcome of €130bn is a reflection of this fact. The €130bn figure is neither weak enough to make QE early next year a sure bet nor strong enough to definitively rule out the possibility. And so, we find ourselves in the same position, with little advancement in the debate over the timing of QE.

However, given that there is still €257bn of outstanding 3-year LTRO loans to roll off before the end of February, our best guess is that by the end of Q1 2015, the ECB may not be lending to euro area banks by much more than the current figure of roughly €500bn. Incidentally, at the end of May, before Draghi unveiled the TLTRO, this stood at €680bn. Whichever way you look at it, Draghi’s €1trn balance sheet expansion target looks a long, long way off.

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Global Macro-Daily Note 12th December 2014


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