I think the next step is for the ECB to move from buying European corporate debt to buying European equities, following in the footsteps of Japan's central bank.
Expanding upon "Diverging fortunes of inflation expectations in the US and Europe", immediately below.
From BlackRock's blog:
Elga Bartsch, PhD
We expect the European Central Bank to keep rates on hold this year. Elga explains why.We believe the European economy requires ongoing monetary policy support. Why? There was a marked slowdown in economic activity last year and inflation remains subdued. Hence tighter financial conditions would pose a risk to the region’s growth, as we write in our Macro & market perspectives Slowing – but still growing.
The euro-zone economy is more open than that of the U.S., and it felt last year’s deceleration in global trade growth more severely. See the Souring trade activity chart below. Several one-off factors also weighed on activity, including new global car emission standards and weather-related transport bottlenecks, wider intra-euro-zone government bond spreads after the Italian election, and recent public unrest in France.
Tighter financial conditions could push euro-zone gross domestic product (GDP) growth marginally below trend if they persist, we estimate. Data already suggest that Germany, Europe’s largest economy, stagnated in the second half of 2018. Euro-zone growth slowed to a standstill in late 2018.If the ECB were to start buying equities I'm sure BlackRock might be able to put some on offer.
The recession risk
We see the risk of a broad recession in the region as remote given the European Central Bank’s (ECB) already extra-easy policy, fresh fiscal stimulus and the lifting of the adverse one-off factors mentioned above. Yet markets might be rattled by the lack of policy levers to counter a new downturn. The main worry is probably less an actual recession than the fragmented political and financial landscape in which it would play out.
European countries such as France and Italy are embarking on new fiscal easing. Unfortunately, they already face fiscal sustainability issues due to either persistent deficits or elevated debt levels. Sustainability concerns could undermine the effectiveness of fiscal easing, especially against a backdrop of wider sovereign spreads and higher political tensions within the euro-zone.
For the euro-zone as a whole, however, the debt trajectory is still headed sideways, if not down slightly. In addition, we have argued that equilibrium interest rates–the rate estimated to be consistent with maximum employment and stable inflation in the long run–will stay structurally low for some time to come. Low equilibrium interest rates allow fiscal policy to become an increasingly important policy tool. Government funding costs are likely to stay well below nominal GDP growth, creating fresh fiscal space....MORE
Related, the FT's David Keohane starring in:
Frontrun the Bank of England for Fun and Profit
Possibly also of interest:
"Which corporate bonds has the ECB been buying?"
Climateer Line of the Day: In With The In Crowd Edition
Frontrunning the ECB: "Investors in corporate bond ‘land grab’ ahead of ECB buying"--UPDATED
"The ECB’s momentous step into corporate asset purchases"
Deutsche Bank On the European Central Bank: We Are Governed By Idiots
Pictet: "The Pricing And Valuation Of Bonds No Longer Reflects Fundamentals" - Why This Matters
