ECB didn’t mention the word taper but EZ markets fear it. On the other side of Atlantic, investors in US compare the tapering fears in 2013 with today’s fears of Fed hike. How much economies and markets actually suffer from tantrums thrown by central banks.
First what explains untaper fears in EZ? No clear answers:
One of the more puzzling aspects of a puzzling week in Europe’s financial markets is that investors have acted as if the European Central Bank had signaled it might taper its bond-purchase program, when it fact it did the opposite. To recap: last week, the ECB left policy unchanged. During his regular news conference, ECB President Mario Draghi said investors should get used to volatility. Already on the climb going into the news conference, yields on German government bonds surged, while stocks fell.
Nobody is entirely sure why this happened, although my colleague Richard Barley has drawn some interesting conclusions from the episode, which we might dub the “untaper tantrum” to distinguish it from the jump in U.S. Treasury yields of 2013 that followed Fed hints it would start winding down its bond purchases.
What was overlooked was a firming up of the ECB’s commitment to do whatever it takes to hit its inflation target.
Mr. Draghi said the central bank had not been at all surprised by the return to inflation in May, even though some policy makers had forecast a lengthier brush with deflation. Then he signaled that policy makers had been a little underwhelmed by recent signals on growth–there were signs of “some loss of momentum.” And Mr. Draghi then said it may be necessary to increase the scale of the bond-buying program, known to many as quantitative easing, or QE. “If need be, if there were other factors which would, for example, create an unwanted tightening of monetary policy or, when we discuss growth, we said there were downside risks to growth and price stability, then we will have to review and reconsider the size, the timing, the design of the program,” he said.
There are good reasons to suspect the ECB will have to double down on QE. For a start, every other central bank has had to do just that. Nobody seems quite sure how much QE is enough, but it always seems to be more than first thought.
It also appears that QE isn’t having quite the impact that was hoped for. Figures released Tuesday showed imports grew at twice the rate of exports in the first quarter despite a weakened euro. In short, one of the most immediate ways in which QE was supposed to aid the recovery—a boost to exports from a cheaper currency–simply hasn’t delivered.
In US case, it is the standard fears. Economic data has become better leading to concerns over Fed rate hikes which continue to be delayed year after year..