20150121-高盛-ECB_QE_and_markets__Some_lessons_from_abroad_16页_707kb

Global Economics Weekly Summary: ECB QE and Markets

Core Content

This report from Goldman Sachs Global Investment Research analyzes the potential impact of the European Central Bank's (ECB) quantitative easing (QE) program on financial markets, comparing it to previous QE efforts in the US and Japan. The report highlights the unique context of the ECB's QE, emphasizing the differences in economic conditions, policy goals, and institutional structures that shape its effectiveness.

Main Points

ECB QE Context and Differences

• The ECB is set to become the last major central bank to implement sovereign QE.
• The ECB operates in a non-unitary system, which differs from the US and UK, where QE was used more directly to influence financial conditions.
• Nominal yields in the Euro area are already much lower than in the US before its QE programs.
• Real yields are also lower than in Japan before the shift to QQE (Quantitative and Qualitative Easing).
• The ECB's environment includes falling inflation expectations and low oil prices, which have contributed to a global disinflationary trend.

Impact on Asset Markets

• ECB QE could help tighten peripheral sovereign credit spreads and raise inflation expectations, both of which are crucial for economic recovery.
• The impact on FX is more straightforward than on interest rates, as the ECB only needs to influence relative inflation expectations.
• For equities, the key is a combination of easing financial conditions and a subsequent growth pick-up in the Euro area.

QE Mechanisms and Transmission Channels

• QE can influence markets through four main channels:
  1. Liquidity provision by acting as a large buyer in stressed markets.
  2. Portfolio rebalancing effects, where asset purchases may shift investor demand to other assets.
  3. Sovereign financing support, reducing the need for governments to issue more debt.
  4. Signalling of the central bank’s commitment to easing, which can anchor inflation expectations and influence market behavior.

Comparison with US and UK QE

• The US QE focused on credit easing and lowering long-term yields, often with a strong signalling component.
• The UK QE aimed at restoring liquidity and supporting private credit markets, though later rounds focused on Gilt markets.
• The Japanese QQE was more about raising inflation expectations to lower real yields, with a broader focus on changing market expectations.

ECB QE Challenges and Opportunities

• ECB QE is more constrained due to already low nominal and real yields.
• The main policy goal is to raise inflation expectations and ease financial conditions to support cyclical recovery.
• ECB QE is likely to be mutualised on its balance sheet, which implies greater risk-sharing among Euro area members, potentially affecting sovereign credit spreads.
• The effectiveness of ECB QE depends on growth improvements and fiscal policy changes, as well as the perception of risk-sharing.

Inflation Expectations and FX Impact

• ECB QE aims to raise relative inflation expectations to weaken the EUR/USD exchange rate.
• The 20-year forward EUR/USD rate has shown some improvement since the Jackson Hole speech, suggesting some success in raising inflation expectations.
• However, global disinflationary pressures have limited the absolute impact on inflation expectations.

Equity Market Response

• The equity market has not yet responded strongly to ECB QE, despite currency weakness and sovereign spread compression.
• A growth pick-up is likely to be the main driver for equity market performance.
• The combination of QE easing and improving economic data is seen as a positive catalyst for asset markets, as seen in the US and Japan.

Key Information

• ECB QE Scale and Maturity Profile: Expected to be a EUR500bn–EUR1trn program, with focus on 5–10 year bonds.
• Mutualisation Debate: The decision to mutualise purchases on the ECB’s balance sheet or keep them on national central banks' balance sheets is politically significant and may affect risk premia.
• Inflation Target: The ECB aims to raise inflation back to 2%, which is below current market expectations.
• Real vs Nominal Yields: ECB QE may not significantly lower real yields due to already low levels, but it could increase inflation expectations, which may help raise nominal yields.
• GDP Growth Outlook: A sustained drop in oil prices may boost Euro area growth by reducing energy costs, potentially equivalent to a 1.5% GDP tax cut.

Conclusion

• ECB QE is not as impactful as previous programs due to already low yields and inflation expectations.
• However, it can still help push inflation expectations higher and further compress peripheral spreads.
• The success of ECB QE will depend on growth improvements and fiscal policy changes, with signalling playing a key role.
• Context matters significantly in determining the effectiveness of QE across different economies, with the Euro area's unique structure adding a distinct dimension to the policy's impact.