What's going on?
The European Central Bank (ECB) can’t exactly lay eyes on its new enemy, but the support it’s expected to announce on Thursday should help the eurozone keep swinging anyway.
What does this mean?
The ECB started its $840 billion bond-buying program back in March, with the aim of cushioning the economic blow of the coronavirus pandemic on eurozone countries. And since it’s only spent a third of that earmarked money so far, it might seem unnecessary to increase that pot by, say, $560 billion. But according to Bloomberg, that’s exactly what most investors are expecting the ECB to do – and if it doesn’t, there could be a sharp sell-off of the region’s assets.
Those investors probably just like the idea of a safety net. Just look at the US, which previously promised unlimited bond-buying: the Federal Reserve (the Fed) hasn’t bought a single bond as part of the program, but just the talk of it seems to have been enough to keep investors from panic-selling and inspire companies to issue their own new bonds.
Why should I care?
For markets: Thanks but no thanks.
The Fed – which is still hashing out the finer details of its bottomless bond-buying – hasn’t actually launched the initiative yet, but some analysts aren’t sure markets actually need its extra support anymore. In any case, companies might be reluctant to take its help for fear of looking needy while rebounding markets as a whole look strong. Equally, they may snap up the offer just in case they need some cash for a rainy – or, er, COVIDy – day.
Zooming out: Can’t we all just get along?
The Bank of England this week warned the country’s commercial banks to prepare for the UK to leave the European Union (EU) without a long-hoped-for trade deal (tweet this). This week’s negotiations between the two haven’t shown much progress, which makes it all the more likely British banks will lose their easy access to Europe’s financial markets.