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Quantitative Easing, Redux   January 19 - January 23
Fri, 23 Jan 04:05 PM EST/09:05 PM GMT
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The European Central Bank launched a quantitative easing program of its very own this week, pledging to expand its balance sheet by at least €1.1 trillion via purchases of Eurozone sovereign bonds. The ECB move had been extremely well telegraphed to markets but European equities rocked higher and the euro tanked on the news nevertheless (the EuroStoxx50 gained 5.6% on the week, EUR/USD plummeted to 12-year lows). The Shanghai and Hong Kong indices saw robust gains as the mixed 2014 Chinese GDP report gave investors hope that more PBoC easing might be right around the corner. More current data only highlighted China's slowdown: the January flash HSBC PMI reading suggested manufacturing could contract for a second consecutive month. In the US, equities made back most of their losses from last week and the 10-year UST yield consolidated below 1.85% while many European government bond rates hit new lifetime lows after the QE announcement. Markets also digested an influx of corporate earnings reports and 2015 outlooks. For the week, the DJIA added 0.9%, the S&P500 gained 1.6% and the Nasdaq rose 2.7%.

The ECB will purchase €60 billion of sovereign debt from Eurozone member states every month until at least September 2016. The program may very well go on longer, until, as Draghi said, "we see a sustained adjustment in the path of inflation." In a concession to German QE skeptics, both the ECB and member national central banks will buy bonds, sharing the risk of default. The Germans were hardly appreciative: Bundesbank President Weidmann rejected the new QE program and said it would be very challenging to hike rates when they were needed. The euro plunged after the announcement, with EUR/USD testing the lower end of 1.11, for 12-year lows. Some analysts suggested EUR/USD could go to parity soon. Yields on peripheral Eurozone debt plunged to all-time lows, while the 10-year bund yield dropped to a record low of 0.353%.

Less than a week after the Swiss National Bank yanked away its euro peg, markets were surprised by a ...
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