The equity market was eagerly looking forward to LTRO 2 and its miraculous consequences. First people were dreaming of a trillion, but after a closer look 530 billion is still quite a lot. A bigger part than at LTRO 1 is not necessary, now c. 5 300B versus € 200B in round 1. So the banks will have more inentives to do something nice wit hit like patriotic buying of PIIGS sovereigns and maybe some credit growth will be triggered. The total amount was Goldilocks: not that little that there wasn’t a liquidity push and not so much that you can derive tremendous financing troubles of banks from it.
At the moment the rosy evaluations of QE and LTRO are dominant. More and more people see it as a game changer (even the pessimists, they see it as the opening of the portals of hell).
Current views judge that because of QE/LRO confidence is growing (and so it makes money moving again and that will cause more growth), markets are rising, banks can finance itself, stress diminished, inflation is no problem (even good: the probability of deflation is going down), interest rates of Italy c.s. can go down, what increases the affordability of too much debt.
What a change since September when the pessimistic views dominated: QE was a disaster, even with QE economic growth had gone down again, the solvability of banks and sovereigns was not improved, not for a dime, the commodity prices were blew up and so ere reducing consumption and economic growth. The risk of the return of the inflation monster that will crush the world is becoming bigger and it will turn up suddenly: first there seem to be no inflation problems like in Germany in 1920 and two, three years later hyperinflation emerged and with an ounce of gold you could buy blocks of houses in Berlin.
The balance sheets of central banks are inflated to unthinkable proportions until suddenly the Minsky Moment will be there: the moment the market will conclude that central banks have insurmountable problems and are bankrupt at the cost of the riches in the concerning countries.
Central banks think improving confidence is more important than the inflation risk. They think they can get in time all the extra liquidity out of the market with higher interest rates (so the banks get a new gift: first you give them money for almost nothing and than suddenly to prevent you will use the money you will pay a lot of interest on it). The pluses seem to win from the minuses. Maybe they will regret LTRO in some time, but more likely they say that thanks to the ECB the economy is growing again/ banks are saved and that the resulting inflation was welcome to alleviate the debt pains.
So Goldilocks will be longer around (maybe with a pause in Q2 or Q3).
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