Pro Perspectives 9/12/19

September 12, 2019

The ECB restarted QE today, just nine months after ending their nearly four-year stimulus program.

So, they are back at it.  And it's open-ended (no expiration). 

The Fed had it's QE infinity (which ran for more than two-years).  This is the ECB's version of QE infinity.

For the moment they have not changed the asset mix from their past asset purchases, which consists of corporate and sovereign bonds.  Adding European equities would be the "bazooka."  They didn't do it, yet. 

Instead, Draghi and company are pushing politicians hard to back them up with fiscal stimulus.  It hasn't worked to this point.  But with Lagarde taking over in November, the idea is that she will have more influence over the EU bureaucrats. 

Bottom line:  We now officially have the Fed pointing south on monetary policy and the ECB and BOJ pumping liquidity into the global economy.  And to be clear, this is all about managing the downside risk of an indefinite trade war!

With this in mind, we've continued to talk about the reality that Trump is in the position of strength in the China negotiations, and therefore, he can make any concessions necessary to get 'a' deal done, claim victory, and remove the overhang of uncertainty on the global economy.  Now, by his design, he has monetary policy tailwinds.  That will only add fuel to the fire, following a China deal, of what would become a booming economy into next year's election.

Today, Trump may be setting the table.  We had some positive headlines on the trade front – a goodwill offering from Trump to the Chinese.  But the bigger news of the day:  A Bloomberg report cited White House sources as saying a "limited trade agreement" is in the works. 

Could this be his "claim victory" move, to come AFTER next week's Fed rate cut? 
Get a deal done.  Get re-elected, and spend the next four years going after the big, meaningful demands on China.