Bigger ECB asset-buying expansion planned

The much-awaited expansion of the European Central Bank’s asset-buying, or quantitative easing (QE), program will be larger-scale than expected, according to Royal Bank of Scotland, which says the objective now is to head off mounting deflationary pressures in the euro zone.

RBS, in a research paper published this week, says the ECB will expand its balance sheet from €2.2 trillion ($3.2 trillion) now to €4.5 trillion, and not the €3.1 trillion previously envisaged. This suggests a further €2.3 trillion of bond purchases, which is more than twice the amount so far mentioned by ECB officials. Continue reading

Central bankers may have no quick fix as markets swoon, economy weakens

Stocks slumped again on Wednesday pushing S&P 500 losses to almost 8 percent since mid-September. The dollar fell and U.S. bond prices soared after weak Chinese inflation and U.S. producer price and retail sales data fanned fears the world economy could be even weaker than thought.

When stock markets turned south last week after rallying for much of this year, many policymakers initially played that down. In fact, the sell-off could be seen bringing some healthy volatility back to markets that officials worried had become too complacent to risks ranging from tensions surrounding the conflict in Ukraine to the Ebola outbreak.

But the deepening of the sell-off may have put major central banks on their heels, by raising the prospect of the market rout going too far too fast, threatening to hurt confidence and potentially triggering a pullback in spending.

“It reminds me of the massive flight to quality we saw during the (2008) banking crisis, when there were fears that the whole global economy would tip into depression,” said Nick Stamenkovic, a strategist at Edinburgh-based RIA Capital Markets. Continue reading