ECB lays blame for market risk on taper gossip

TURBULENCE in global markets is an escalating risk to the Eurozone’s financial stability, even as funding challenges for the region’s banks begin to abate, according to the European Central Bank (ECB).

Yesterday’s financial stability review from the ECB says that concerns around turbulent markets have grown since May, blamed mainly on the expectation of major US monetary policy changes.

The review, which is issued by the ECB twice a year, warns that there is a potential for further credit market turbulence, despite the fact that volatility from the expected tapering of QE has subsided recently.

“Ongoing political brinkmanship” over fiscal policies in the US also has the potential to “translate into far broader financial market tensions and negative confidence effects”, according to the ECB.

However, the report adds that there has been an improvement in the funding situation for many euro area banks that have particularly stressed financial systems.

Unemployment figures from the US also beat expectations yesterday, raising the prospect that the Federal Reserve will trim back its $85bn (£52.26bn) monthly asset purchases in its next meeting.

The number of continuing claims for unemployment benefits fell to 2.78m in the week to 15 November, dropping from 2.88m the previous week. There is only one further jobs report to be revealed before the Fed’s December decision on whether to taper its easing scheme.

Paul Dales of Capital Economics commented: “As the last major data release before the Fed’s mid-December meeting, November’s Employment Report could tip the finely-balanced tapering decision either way. If jobs growth was broadly in line with our forecast, then the case for tapering in December would strengthen.”