With the 3rd largest bond market in the world, that of Italy of course, alarmingly on the cusp of losing access to the capital markets, many want ECB Pres Draghi to put on his Ben Bernanke Halloween costume and print money to buy massive amounts of Italian bonds. The purchases of almost 200b euros of sovereign debt has done nothing to stem the rise in bond yields up to this point but the market calls for more come nonetheless. This call reflects a complete misunderstanding of both history, the attitude of the Germans and the laws governing the ECB however. It more reflects the markets desire, cultured by the Fed over two decades, for temporary fixes. The ECB is doing their best though to reduce market expectations for QE and in fact member Knot said the ECB may be soon running up to their upper limits as the more they buy, the more difficult it will be to sterilize. He said “not much more can be expected from us, it’s up to the governments.” ECB member Praet said if fiscal reform fails to satisfy bond markets, “then it is not by intervention of the central bank on a continuous basis that you would solve the problem.” This follows comments last week from ECB member Weidmann who is firmly against money printing. Italy sold 1 yr bills 252 bps above one sold last month but yields are falling across their curve. French yields though are again moving higher. As expected, Greece named Papademos as its new, temporary PM. Have no fear of Europe though, especially the Italian bond market close to imploding and a shrinkage of the European banking system says the US individual investor as the weekly AAII readings of bulls and bears have bulls rising to the highest since Feb at 44.7 and bears falling to the lowest since Jan at 24.6. In Asia, Indonesia unexpectedly cut rates by 50 bps to 6.0% and follows rate cuts of late from Australia, the ECB, Brazil and currency easing by Singapore.
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