ECB unlikely to fix yield curve, Fed stays data dependent - ADMISI

This week we saw Bank of Japan surprise markets with another extreme step – yield curve control. BOJ now aims to keep 10-yr yield at zero percent. Pundits have started discussing the possibility of ECB coming up with its own version of yield curve control, although such a move appears unlikely given the 17-nation central bank faces technical and political road blocks as explained by Marc Ostwald, Strategist at ADM Investor Services International. He is joined by Tip TV’s Zak Mir and Charlie Gibson, who is the head of Mining at Edison Research.

While talking about ECB, Ostwald says the key question is whether ECB would fix Bund yield curve or the yield curve of other Eurozone nations. Furthermore, an attempt to fix the yield curve could be met with political revolt.

Key quotes:

BOJ - All the tweaking simply highlights how exhausted their policy is. Fixing yield curve means changes in interest rate expectations and monetary policy will be primarily telegraphed by currency markets – Yen. So if we lose faith in BOJ, Yen would drop, which is something the BOJ wants.

Extremely low rates – are deflationary

Fed – remains data dependent which means Dec rate hike would be off the table if the data disappoints

Rally in markets – is mainly due to oil price recovery and investors being less worried about the banking sector. However, we have Deutsche bank story coming out today and oil is stuck so suddenly the rally could stop.

The key issue is they are worried that there are still systemic risks in the banking sector.