I have been slow to grasp an important point: the ECB is already conducting QE. Between October 2010 and July 2011, the Fed’s balance sheet expanded by the equivalent of EUR 412bn; in the past six months, the ECB’s balance sheet has expanded by around EUR 117bn. The ECB’s QE remains relatively small — the point is that more QE would be a quantitative, not a qualitative, change in ECB policy. Given the smallness of the programme so far and the importance of expectations as a transmission mechanism for QE (and the ECB’s secretive approach at present), QE will probably mitigate the effects of economic decline but not be enough to support asset prices.

Two stories that have been reported negatively today strike me as being rather positive. First, existing house prices fell in 33 of 70 Chinese cities in October — which means that they failed to fall in 37. The median decline was 0.1% MOM. This has been reported as evidence that Chinese property prices have peaked. That may or may not be true, but it seems to me to be rather early to make the call (as it implies that there will now be a significant decline). And it is surely good news that the government has reined in a property bubble — rather than ignoring it, as Western authorities did in the 2000’s. Second, Merkel has rejected a renewed call by Francois Baroin, the French finance minister, for the ECB to be used to backstop European sovereign credit markets (via the mechanism of a banking licence for the EFSF). Since German opposition to this course it well known, surely it is good news for Europe that the French have put this option back on the table, after abandoning it in late October in order to get agreement on the latest “comprehensive package.”


Building permits 0.65m b.e.
Initial claims 388k b.e.
Housing Starts 0.63m a.e.
Philly Fed falls to 3.6, d.e. This series has been volatile recently.
German PPI 0.2% MOM b.e.