ECB's loans offer clues in quantitative easing guessing game
By Robin Emmott
BRUSSELS (Reuters) - The guessing game over the timing of euro zone money printing will intensify as the European Central Bank unveils a closely watched gauge of policy in the coming week, the highlight of a calendar dominated by Europe's malaise.
On the other side of the Atlantic, investors will continue placing their bets on a different but equally crucial event: when the U.S. Federal Reserve might raise interest rates.
U.S. data and several Fed central bankers will give a sense of the speed of the recovery and when a rate rise might be merited, while oil prices and Chinese data will provide plenty more for markets to digest.
"The key story is going to be in the euro zone," said James Knightley, ING's senior economist, referring to the results of the ECB's targeted long-term refinancing operations (TLTROs) on Thursday.
The cheap loans for banks are one of the ECB's main ways to flush money into the stagnating euro zone economy. "If the take-up is poor, that could increase market talk that the ECB is going to step in and use other tools," Knightley said.
That means a sovereign bond-buying program like those used in the United States, Britain and Japan, but which Germany fears would encourage reckless state borrowing and fuel inflation.
Such a program may come early next year. "The take-up of TLTROs could swing the ECB's Governing Council between January and March, depending on how the number looks," said Citigroup economist Guillaume Menuet.
The first TLTRO was taken up only to the tune of 83 billion euros. Hopes are higher for this time but forecasts hover around the 150 billion euro mark, leaving the ECB short of the 400 billion euros it was prepared to offer banks in total. Continued...