Reading the ECB

Question: Which picture and caption best describes the outcome of today's ECB meeting?

"Read my lips, on n'achetera plus de dette"

"Show me to the trough"

Inquiring minds want to know. As far as I can we got the same basic New Speak as we are used to but on the other hand, as FT Alphaville points out the ECB used the occasion of the meeting to pick up a heavy portion of Irish and Portuguese bonds (since essentially, no one else wants to buy at anything near acceptable yields).

Of course, the above picture may be a bit unfair since Trichet did reiterate the "we are here to help" discourse in the sense that existing measures to provide liquidity will be kept in place. However, the expectation was that a heightened risky environment would also call for additional measures. Concretely, investors have been buzzing around the prospects of the ECB moving closer to the outrigt QE position of the BOE and Fed.

On this, Trichet and his colleagues so far stayed their course as the chairman reiterated that purchases on the Securities Market Program would remain to be fully sterilised. So far so good, but as Matteo Regesta from BNP Paribas SA in London points out (via Bloomberg);

“In the scenario where SMP eventually increases to a meaningful size, weekly full sterilization of the stock will become a non- trivial task. The only way to avoid such a jam is to keep the program at a low scale.”

So, there is an inflection point somewhere it seems and we may soon find out where it is.