ECB ‘Bazooka’ Extended – Will Buy EUR 60 Billion Per Month Until At Least December 2017

The ECB’s ‘Bazooka’ is back and ‘Super Mario’, the European Central Bank’s monetary magician did not disappoint QE addicted markets yesterday by extending ultra loose monetary policies and quantitative easing until at least December 2017.

The euro fell and gold rose 1.1% in euro terms from €1,090/oz to €1,102.85. Stocks globally moved higher, and European stocks look set for their best week since February, supported by the extended ECB currency printing and a calm, some would say complacent and irrationally exuberant, reaction to the Italian referendum.

Despite the recent sell off in gold, it remains 13% higher in euro terms in 2016 –  10% higher in dollars and 30% higher in pounds.

Gold in EUR (YTD 2016)

The ECB somewhat surprised markets by extending its bond-buying ‘stimulus,’ but at a lesser amount – reduced from €80 billion to €60 billion. The ECB tapered despite Mario Draghi categorically insisting that there was “no question” of ECB tapering.

The decision helped send Wall Street to fresh record all time highs, as investors decided the ECB was signaling an extended period of even looser monetary policy. Draghi had previously signaled that QE would continue until next September.

However, the ECB warned that if the outlook becomes less favourable they will increase their bond buying programme. They said that may increase the size and duration of the programme if needed.

Given the scale of the political, economic and systemic challenges facing the EU – including the coming Dutch, German and French general elections – this seems likely.

Although, not if the voice of monetary prudence has its way. The German Bundesbank chief Jens Weidmann voiced concerns.  The president of the Bundesbank did not agree with the decision to extend its bond purchases according to German newspapers.

Weidmann had warned on Monday that central banks shouldn’t use easy-money policies to fight debt crises or rising populism, signaling he would resist any policy change from the ECB.

Weidmann’s comments were largely ignored but according to the Wall Street Journal:

Mr. Weidmann said the decision should be based exclusively on the outlook for inflation and not on political considerations, such as easing the pressure on governments.

“If a central bank keeps jumping into the breach for politicians or even trying to influence the democratic process, that leads to a politicization that endangers its independence,” he said

Italian banks are on the verge of collapse.  Banks in Italy have a massive €360 billion of non-performing loans, equivalent to more than a fifth of the country’s GDP.

The “EU maths” simply do not add up.

Super Mario’s QE of €60 billion a month would be exhausted in dealing with the bad loans in Italy alone in just 6 months. Meanwhile, there continue to be major financial challenges in many banks throughout the EU including in Germany with Deutsche Bank.

In September, Draghi “refused to answer questions” regarding Deutsche Bank during a closed-door m