Qunatitative Easing of European Central Bank would end in Sep, this year

1. There not left an obstacle to stop Mr. Draghi from contracting monetary policy.

Market participants are expecting end of QE in Eurozone, in near future, maybe September.

Even though President of ECB, Mario Draghi, is showing very discrete attitude to it and Indices aren't that good, his underlings keep showing confidence about economic situation, and alluding to end ongoing Quantitative Easing.

The biggest obstacle could be Italian problem, but Rome is announcing their staying in EU.

Actually, looks like the central bank don't care about that anymore.

It's same for market participants too. I can tell this based on recent EURUSD which pierced 1.18 temporarily.

The economic indices aren't good, but the officials think increasing inflation is enough, and those poor indices are just temporal issue.

2. Would it be Harmagedōn for European FI market?

But I think FI market in EU wouldn't plunge.

Even after the central bank end their QE, they will keep providing liquidity to market by reinvesting revenue from interest and principle from securities in their reserve.

It means there will still be full liquidity in the market, so market yield will be fall below 1% like now for a long time.

It will be help to anticipate future to see appearance of US FI Market at end of Fed's supplement of liquidity.

 

Fed ended their QE at October, 2014.

But even after end of QE, Market yield wasn't that skyrocketing.

Actually, there was some periods in which the security showed its statue as safe asset.

It would not be different for European market.

Besides, there would be appropriate downside-pressure for US T-Notes because US government is pledging huge fiscal policy about increasing infrastructure.

German bund could be the greatest substitute for US securities.

At least until mid-2019, when the participants expect ECB will start increase of policy interest rate, the lowest yield will be continued.

3. Relative weakness in EUR will not be reversed.

In typical financial theory, rising interest rate leads to appreciation of the currency.

I think the theory wouldn't be applied to the market this time.

Economic momentum in US, which some experts refer to "We can't say global economic growth is proceeding. only US growth is there", and 3% yield in US market will smash effect from end of QE.

I don't think EUR couldn't get its momentum like I written before.

4. Slump would be proceeding in European Stock market, specially European Bank sector.

As I written before, I expect slack of European Stock market.

But it's not because end of QE.

On the other hand, Bank sector in the region will go through damage from the lowest yield.

Unlike their counterparts in US, Banks in EU have got hurt from prolonged minus - zero interest rate, even now.

And they failed to diversify their portfolio globally, to protect themselves from the lowest rates, unlike Japanese banks.

Nowadays, investors are angry about underperformances in all areas of the zone from Commercial Banking to Corporate & Investment Banking.

Activists are requiring Barclays to drop its CIB part and Deutsche Bank is restructuring their Sales-Trading part.

RBS restructured their business long before ago, but shareholders request additional restructure to the company.

Italian banks, which are represented as UBI Banca, are still struggling to reduce their bad debt.

They are trying to solve those problems via M&A.

Talks about Barclays - Standard Chartered and Societe Generale - UBI Banca are proceeding in the market.

But those are just talk-talk-talk.

Chaotic political situation in the region, wouldn't allow those mergers and acquisitions to proceed smoothly.

5. Conclusion

It could bring temporal volatility in the market, but after short-volatile period, I believe It couldn't be major factor in the market.

Eurozone

- Weak stock market, appropriately weak EUR and appropriately strong German FI market