#84 Open ended €20bn per month, oil supply shock


EUR is the most trustworthy currency, out of the special drawing rights basket, that is able to support the needed global fiscal expansion, as it has enough spare capacity to offer a return to the extra liquidity that will be generated. Does it sound familiar? Does it sound like the current market consensus?

The introductory statement was included at our 24th of August issue. Readers were prompted since 17th of August, that new bands are coming in and that music is not slowing down. On top of the open ended 20bn per month new asset purchase program, that was announced on the Thursday’s ECB monetary meeting, fiscal spending is coming in.

I keep my ground, favoring the risk-on mode, with USD falling and EUR-AUD-CAD and equities advancing, during the next week. The Maestros of the Central Banks are nailing it, managing to be neither behind, nor in front of the curve.

Major events of last week:

  • USA-China: Two baby steps have been taken from both sides. President Trump announced that the 1st of October tariffs increases would be delayed for 15 days and the Chinese purchased 600k metric tones of Soybeans. Meanwhile, a Huawei lawsuit against the US government was dropped. China has cut bank reserve requirements for the 7th time since 2018 as its trade balance is falling. Besides the Chinese exports to Japan and Taiwan that increased, exports to the USA, Europe, S. Korea, Australia, South East Asia are dropping.
  • Afghanistan: No break through has been recorded. Negotiations with the Taliban have been canceled and John Bolton, the 3rd national security adviser of Trump’s administration, has been replaced.
  • OPEC: Global oil demand growth has been revised downwards and now stands at 1.02mb/d. OPEC is now expecting Global GDP growth of 3.0%. Deeper oil cut production has been put on hold until December at the OPEC+ meeting. Compliance to the currently agreed production cap stands at 136%. Saudi Arabia is shutting down half of its oil output due to drone strikes.
  • ECB: 20bn open ended QE starts on November, up until inflation is adequately close to the 2.0% target. The previous QE program lasted for 3 years and 9 months. It started on March 2015 with €60bn per month net asset purchases, increased to €80bn per month on April 2016, decreased to €60bn per month on April 2017, decreased to €30bn per month on January 2018 and decreased to €15bn per month on September 2018 before ending on December 2018.
  • Russia: In the regional elections in Russia, held during the previous weekend, where many opposition candidates have been refused to participate and protests against these anti-democratic practices have been held, the candidates supported by President Putin, continue to enjoy a 26 seat majority in the 45 seats parliament of Moscow. Putin continues enjoying a 60% popularity rating.
  • Cryptos: Total market cap at $265bn -1% w/w. (-30% from the 2019 high, -67% from the all time high).
  • Macros: US factory orders and US unit labor cost increased. US Non-farm payrolls was 130K, way smaller than the past reading, but enough to provide full opportunities for young people entering the workforce. Both the Australian and the Canadian Central Banks left their rates unchanged.

Major events of next week:

  • Markets reaction to sudden oil supply shock
  • Monetary meeting of the FED on Wednesday, of the BOE and BOJ on Thursday.

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