ChartBrief #22 Oktaperfest

So far the economic data out of Europe carries a message along the lines of “crisis averted” with the ZEW and Sentix economic confidence surveys turning up, and generally good data surprising against depressed expectations (Eurozone economic surprise index turning up).  So it’s only natural then that the attention starts to turn to the ECB’s quantitative easing program that is due to finish in March 2017 – which consensus says will almost surely be extended in some form.  Already people (including us) are starting to talk about when and how the ECB will taper QE…

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Reports are that the ECB is already talking about taper – of course the timing of it could still be a long way off.  But the fact is that the ECB is already tackling the challenge of finding enough bonds to buy, so you could say it’s already starting to brush up against the limits of QE.  At the same time inflation and inflation expectations appear to be stabilizing.  Likewise the economic data has avoided a Brexit breakdown and is actually turning up, the next step may be for the above chart to actually show a breakout on the grey line of the downtrend that has prevailed over the previous year.  If that were to occur then taper talk would ramp up and bond yields would do likewise.  While a surprise taper announcement or taper hint could spook bond markets into a selloff, improving economic data can do just the same – and the turning of the lines in the graph above could be the start of that.  So with the ECB meeting again next week, all eyes and ears will be tuning in for any taper talk, or an “Oktaperfest” if you would…

Bottom line: Beware of the threat of taper talk for global sovereign bond yields as European economic data takes an unexpected turn for the better.

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Topdown Charts: "chart driven macro insights" Based in Queenstown, New Zealand, Topdown Charts brings you independent research and analysis on global macro themes and trends. Topdown Charts covers multiple economies, markets, and asset classes with a distinct chart-driven focus. We are not bound by technical or fundamental dogma, and instead look to leverage any relevant factor to capture the theme. As such, here you will find some posts that are purely technical strategy, some that just cover economics and data, and some posts that use multiple inputs to tell the story and identify the opportunities. Callum Thomas Head of Research Callum is the founder of Topdown Charts. He previously worked in investment strategy and asset allocation at AMP Capital in the Multi-Asset division. Callum has a passion for global macro investing and has developed strong research and analytical expertise across economies and asset classes. Callum's approach is to utilise a blend of factors to inform the macro view.