Central Banks

Has QE stolen volatility from the market?

At least it is right now

The ECB Coeure had an interesting speech this week that hasn’t gotten enough attention. It was all about the effects of the Asset Purchase Programme — the central banks QE program.

Keep in mind that Coeure is a leading candidate to take over the ECB from Draghi. In the speech, he emphasizes the stock of purchased assets and how that is continuing to stimulate the eurozone. That’s not a big surprise but he also notes how it’s helped to suppress volatility.

He shows this via the bund:

Coeure estimates that bund volatility on economic news is down 20% because of QE.

He frames this as a good thing:

“What stock effects do is shield financial conditions from unwanted tightening forces and thereby help preserve the financial conditions that are needed to ensure a sustained convergence path of inflation towards levels that are below, but close to, 2%.”

That might be right but it’s not a good thing for trading. Volatility in FX is making the market tougher.

Looking ahead, I see this as an indication that Coeure is unafraid of introducing more QE or other policy experiments the next time a downturn hits.


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