ECB to cap government bond yields?

- That's what Der Spiegel says
- Spain welcomes the idea

It isn't only expensive bottled water such as San Pellegrino (£1 a litre) and Voss Artesian (£3.30 a litre) that the big supermarkets are palming off onto gullible consumers. Today's Daily Mail reports that Tesco and Asda have "value" water available as well, at the affordable price of 8 1/2p a litre, for poor people who would rather not drink the stuff in the tap. But what they don't mention on the label is that their bottled water comes out of the tap too. Readers of a certain age may recall an episode of Only Fools and Horses in which Del sold bottled tap water as "Peckham Spring". People were laughing then.

They were not laughing on Friday, at least in the FX market. A quiet end to a quiet week smacked more of tedium than of hilarity. Euroland reported a seasonally-adjusted current account surplus of €12.7bn for June and a trade surplus of €10.5bn. Canadian inflation slowed from 1.5% to 1.3%. The University of Michigan's index of US consumer confidence improved by a point to a provisional 73.6. There was nothing wrong with any of those numbers but side-splitting they weren't. 

Even the Rightmove index of asking prices for UK residential property was less amusing than usual when it came out at midnight. An unexpected outbreak of realism and commonsense saw would-be sellers reducing their offers by an "aggressive" -2.4% in August. The reduction was more than double the -1.1% average price drop seen in August over the last ten years.

There was no reaction by sterling to the Rightmove figure, just as there had been no reaction to Friday's ecostats. Compared with Friday morning the pound starts today a third of a cent lower against the US and NZ dollars, a quarter of a cent down against the Australian dollar and a quarter of a cent firmer against the euro and the Swiss franc. Against the yen and the Canadian dollar it is unchanged. Ranges were narrow and excitement was in short supply. 

That is likely to be the case today, too, unless investors can see the funny side of Euroland construction output or the Chicago Federal Reserve's national activity index. So let's look at yesterday's Der Spiegel and its unattributed report that the European Central Bank will set a cap on Euroland government bond yields. The story has it that the ECB would use its unlimited buying power to push up bond prices, thereby lowering the borrowing costs of countries such as Spain and Italy. Spain's Economy Minister, Luis de Guindos, has said he thinks it is a grand idea but he would, wouldn't he. Spanish and Italian banks will also be in favour of the plan, given the unrealised losses they are facing on bonds bought at the turn of the year with cheap ECB loans. The story might even support the euro for a while this morning but it will have lasting impact only if the ECB confirms it.