While Mario Draghi succeeded in slamming the Euro today by telegraphing his renewed displeasure at the escalating trade wars between the US and Europe while modestly reducing the central bank's inflation forecast, the unmentioned elephant in the room remained front and center: the ECB is rapidly running out of eligible (German) bonds to monetize.
But while Draghi removed the easing bias language in the ECB's statement - hardly a surprise that the central bank won't be buying more bonds in the coming months - there was no discussion of either the timing, sequencing or specifics of the ongoing taper. Instead the ECB appears to have picked Bloomberg as its "trial balloon" conduit du jour, and in a report published moments ago, Bloomberg writes that according to leaked ECB "internal staff calculations on the future path of monetary policy", the central bank projects that asset purchases will total €30bn in Q4, 2018 "according to euro-area officials familiar with the matter."
This means that the ECB would be monetizing only €10 billion per month in October through December, at which point QE will supposedly end, or as Bloomberg puts it:
A 30 billion-euro extension in the final three months of the year would allow for a short taper. The current pace of purchases is about 90 billion euros a quarter, or 30 billion euros a month.
The reason for the mini taper, is that "policy makers have long been in agreement that QE shouldn’t stop abruptly -- a view ECB President Mario Draghi has publicly voiced in the past."
To be sure, while Bloomberg is quick to hedge that "the assumptions are technical and don’t constitute a pre-commitment on bond buying past September, when the current program is scheduled to end" which is obvious since Draghi wouldn't even touch on this topic, "there’s broad agreement among Governing Council members that quantitative easing should probably come to a halt by the end of 2018" according to Bloomberg's sources.
The ECB has so far tapered its QE on two occasions: once in December 2016, when it trimmed monthly purchases from €80 to €60BN, and again last October, when Draghi announced that future monthly purchases would be chopped further in half, to just €30BN per month. Meanwhile, the media was abuzz with speculation of a "short taper" which today's Bloomberg report has once again confirmed (and since it has been the same Bloomberg authors, Jana Randow and Alessandro Speciale, it is clear that it is the same (German) source leaking the "short taper" details month after month."
The article also notes that ECB members have taken note of market expectations for the ECB future rate moves at this meeting, deeming them quite stable since the last January meeting and having no concerns regarding them. As Bloomberg reminds us, the market has a full hike priced in for Q2 2018.
In other words, come January 1, 2019, it will be all up to Kuroda and the BOJ to continue injecting liquidity, a task which is becoming increasingly problematic for the BOJ as well, as the central bank now owns roughly half of all Japanese government debt, and its growing ownership is becoming a structural concern for the stability of the Japanese bond market.