Draghi seizes the initiative

The ECB is to undertake quantitative easing (QE), buying private sector assets (ABS and covered bonds) starting in October. Policy interest rates have been reduced to the zero bound. These measures increase the attractiveness of TLTROs and, taken together, have the potential to increase the ECB balance sheet by up to 50%. We remain short euro and long US dollar (along with short yen, Swedish krona and now sterling versus long US dollar). We are staying out of euro bond shorts and have a long bund, short UST position on. Eurozone (EZ) equities will benefit from the ECB’s decision but we remain neutral, focusing on equity longs in the US and Japan.

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