The ECJ’s attorney general has ruled broadly in favour of Mario Draghi’s OMT programmeLatest: euro slides as QE nearsSummary: ECJ’s top advisor concludes OMT is a suitable measureECJ ruling releasedEarlier:Markets hit by commodities rout 10.05am GMT Just in: Eurozone factories increased their output in November, despite fears that its economy is weakening. Production was up by 0.2% month-on-month, beating forecasts of a flat reading. That still leaves output 0.4% lower than a year ago.Euro area industrial production +0.2% in Nov 14 over Oct 14, -0.4% over Nov 13 #Eurostat http://t.co/QUdEJQw4Rk pic.twitter.com/Pu1UexpiV9 10.01am GMT The euro has fallen to a new nine-year low, below the level it launched at in 1999.Traders are concluding that the ECJ’s interim ruling clears the way for a quantitative easing programme to be launched soon, perhaps as soon as next Thursday.EUR moves to the same level from when it was first launched in 1999 as the imminent QE continues to gain traction http://t.co/wC9e6mO9ITLooks like #ECB is pleased to have got a green light from ECJ. #Euro trades below $1.1753; lowest since Dec2005. pic.twitter.com/f0H4DxyEypGBPEUR is at the highest since October 2008. Homing in on 1.30 handle, level not seen since March 2008 9.53am GMT The ECJ’s top advisor has also taken a pop at the German courts which brought the case, saying that they lack the ‘expertise’ of the European Central Bank.Pedro Cruz Villalon says, in today’s ruling that::the courts must exercise a considerable degree of caution when reviewing the ECB’s activity, since they lack the expertise and experience which the ECB has in this area. There is however a further catch in terms of the ECJ highlighting that the ECB must not fund insolvent institutions/countries - implies Greece and Cyprus might have to be excluded from QE? On the other hand “insolvent” requires definition - or as one journalist opined to me “to misquote Clinton ‘it depends on what your definition of ‘insolvent’ is’?” (as per “I did not have sexual relations with that woman”) . 9.49am GMT ECJ ruling means QE is go. Even ruling against OMTs would prob not have stopped ECB. QE is monetary policy. OMT more a bail-out tool 9.45am GMT In the alphabet soup of monetary policy, it’s important not to confuse OMT with QE, as analyst Lorcan Roche Kelly points out:The Outright Monetary Transaction programme is meant to help a struggling eurozone member state, by reducing its borrowing costs.I guess the other thing worth pointing out. ECB QE (as expected on Jan 22) is not OMT. 9.27am GMT The financial markets have taken this morning’s interim ruling in their stride, with the euro unchanged at $1.177 to the US dollar.That’s another sign that the ECJ has not thrown a roadblock in the way of a new quantitative easing programme:It seems to be chocks away for European QE after ECB bond purchases are conditionally cleared by the European Court of Justice. 9.19am GMT The European court of justice advocate general’s has given an interim ruling that broadly favours the European Central Bank in its attempt to save the eurozone.Pedro Cruz Villalon has advised the ECJ that the ECB’s government bond-buying programme was compatible with EU treaties, although he did also identify some conditions.The Advocate General considers that the OMT programme is suitable for bringing about a reduction in the interest rates on government bonds of the States concerned; such a reduction would make it possible to return to a certain degree of financial normality in those States, thus enabling the ECB to conduct its monetary policy in conditions of greater certainty and stability. He also considers that the OMT programme is necessary as well as proportionate in the strict sense, since the ECB does not assume a risk that will necessarily make it vulnerable to insolvency. ECJ statement on OMT: http://t.co/za8k32YtVf #QE #ECB 9.08am GMT Today's European Court opinion on the ECB's powers is from the Advocate General not the court. The court's likely but not certain to follow. 8.59am GMT Eurozone crisis expert Yannis Koutsomitis also reckon today’s ruling is a win for the ECB’s president:#ECJ's Villalón opinion on OMT is huge. Justifies sovereign bonds buys by the ECB under certain conditions. German hawks lose, Draghi wins. 8.57am GMT At first glance, there’s nothing in this ruling to derail the ECB from launching a quantitative easing programme. Full summary shortly... 8.57am GMT The ruling does flag up the risk that a eurozone country could issue debt, safe in the knowledge that the ECB would mop it up:ECJ adviser fears 'purchase on secondary market made secs after issue on primary market could completely blur the distinction between two' 8.54am GMT #ECB’S OMT plan may be legal, #ECJ court aides says; "some conditions may need to be met" ← Greenlight for the ECBCouched in lawyer speak - we shouldn't be surprised. It may be legal but it might need to be conditional. #euroBasically, the #ECJ advocate general says @ecb is free to go ahead with #OMT. Just has to explain it a bit better: pic.twitter.com/VpECkKsA3C 8.50am GMT This looks important: the European court of justice’s advocate general has said that the ECB must be given “broad discretion” to set monetary policy as it sees fit.Key paragraph in #ECJ advocate general's opinion on #OMT: @ecb must have "braod discretion" to set own policy. pic.twitter.com/Fa3X79aBbK 8.47am GMT More details from the ECJ. The advocate general has decided that the OMT bond-buying programme would be compatible with EU treaties, as long as the central bank does not distort the markets:ECJ: ECB MUST ALLOW FORMATION OF MARKET PRICES IN OMT - MNIECJ: OMT MUST COMPLY WITH PRINCIPLE OF PROPORTIONALITY - MNI 8.43am GMT The ECJ also wants the ECB to “outline the reasons” behind an unconventional monetary policy such as OMT. 8.41am GMT Breaking: The ECJ is saying that the European Central Bank’s Outright Monetary Transactions programme appears to be legal, as long as certain conditions are met.Those conditions identified by the court’s advocate general include insuring that the ECB does not provide “direct” financial assistance when it buys debt issued by a eurozone member:Read out of opinion on #ECB #OMT beginning in #ECJ, says "may" be legal - seems it will take account of some German concerns 8.36am GMT The ECJ is starting to read the ruling out now. Newswires are snapping the key points.... 8.32am GMT Right, we should be getting the European Court of Justice’s interim ruling on the ECB’s bond-buying plans shortly (if you’re just joining us, check out the opening post for details)...EYES DOWN 8.31am GMT The other European markets are also in the red: 8.21am GMT Shares in London have dropped sharply in early trading, as fears over global growth hit commodity prices.The FTSE 100 has tumbled by 102 points, or 1.6%, in early trading to 6439.Shanghai #copper fell over 5% to trigger a trading halt overnight, read more here http://t.co/B5qsiusSKhEurope has been pretty sluggish, China’s still got that property overhang, Japan’s entered recession. You’ve got the U.S. and UK going fine, so it’s a patchy global growth picture - but it’s one that has definitely deteriorated from six months ago,” said “We are definitely not in global financial crisis territory, where global trade is impaired and can’t be financed. We’re still seeing commodity transactions - just at lower prices.” 8.11am GMT Interesting... Mario Draghi has told Germany’s Die Zeit newspaper that the European Central Bank is ready to buy government bonds: Talking the talk. *DRAGHI SAYS ECB IS READY TO BUY GOVERNMENT BONDS: DIE ZEIT 8.01am GMT Rating agency Moody’s has warned that the risks of Greece crashing out of the eurozone have risen, but are still lower than in 2012.Moody’s said that the general election scheduled for January 25th could have “negative credit implications” for other eurozone members, if the left-wing Syriza party wins power.“The likelihood of a Greek exit is still lower than during the peak of the crisis in 2012 and remains relatively unlikely’ While Syriza is committed to the monetary union, it has also signalled that it could seek debt forgiveness from its euro area peers. Other euro area governments are likely to reject such a request, partly because it could lead to similar demands from other highly indebted euro area countries. 7.55am GMT Today the European Court of Justice will their final opinion on the ECB’s OMT Program and the impact on a potential QE Program 7.45am GMT This morning’s ECJ ruling comes hours after the World Bank urged the ECB to launch a quantitative easing scheme.The World Bank slashed its forecast for eurozone growth in 2015 to just 1.1%, and called for a new money-printing programme to boost demand.“The danger of deflation would be compounded by the difficulties already afflicting countries in the eurozone: a shrinking working-age population, slowing productivity growth (reflecting a lack of capital-embodied new technologies), and a loss of skills among the large number of long-term unemployed.”The world bank has updated its economic forecasts. Cuts Eurozone 2015 outlook from 1.8% to 1.1%. US forecast up from 3.0% to 3.3%. 7.31am GMT Hans Nichols of Bloomberg TV says that ECB chief Mario Draghi will be looking for “guideposts” in today’s interim ruling, and for “conditions that could be forced on a future QE programme”.While investors continue to bet that we will get some form of action from the ECB next week, there still remains the small matter of this morning’s preliminary assessment by the European Court of Justice (ECJ) of the legality of the controversial and untested OMT program. The court will give a non-binding opinion at 08:30GMT on whether it agrees with the German Constitutional Court’s ruling that the ECB acted beyond its powers, though a final opinion won’t come for at least another six months or so. 7.18am GMT Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone, and business.Happy ECJ Day folks!“If the ECB committed to buy a monthly amount of government bonds until the outlook for inflation improves, it would be a much more powerful, more flexible and more credible form of QE than just naming an amount of purchases within a certain timeframe,” “It would give markets more certainty that the ECB is willing to do ‘whatever it takes’ to try and return inflation to its target.” Continue reading...
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