MADRID | The Corner | Regarding the corporate bond purchases by the European Central Bank, market watchers at Barclays consider that it won’t be enough to expand the balance sheet by €1trillion. Expert Alberto Vigil notes that, since investors are already buying corporate bonds, it doesn’t make much sense for the ECB to also purchase them, especially given the fact that asset risks are not exactly cheap. (Graph by Bruegel)
SAO PAULO | By Marcus Nunes via Historinhas | While the Riksbank can focus exclusively on Sweden, the ECB has a more complicated task, having to ‘oversee’ a bunch of countries. Both central banks have an exclusive mandate: “Price stability”. While in Sweden that is understood as 2% inflation, in the EZ it is something slightly lower. Nevertheless, the two ‘countries’ central banks acted in tandem, tightening as a reaction to higher than target inflation due to oil price shocks.
MADRID | By JP Marín Arrese | Most banks have comfortably overcome the stiff hurdles raised by the EU-wide stress test unveiled on Sunday. A reassuring outcome was widely expected, as Europe cannot afford to destabilise its financial sector when economic performance looks so grim. Yet, securing a fair result fails to endorse banking resilience should the underlying assumptions underestimate key risks. This shortcoming was evident from the start. For, the stress test builds on potential shocks failing to reflect key vulnerabilities, thus hampering its ability for properly assessing financial stability in rough times.
MADRID | The Corner | The dollar is set to rise, mostly as monetary policies of the Fed, ECB and BoJ are set to diverge dramatically, the greenback trend being intact and the cheap valuations, analysts at Barclays commented.
LONDON | By Keith Parker at Barclays | The recent risk aversion episode has raised concerns that global growth and inflation are continuing to fall. While the collapse in oil is flashing red, copper prices and industrial metals have had a more measured decline. Copper has historically been a good barometer for global production and is pointing to continued sluggish growth, but not another leg down.
MADRID | The Corner | As all market eyes are set on Sunday’s stress tests results (which will be released 12 pm CET) and the FOMC meeting next Wednesday, the last PMI data are offering some hope, mostly in Germany. The rumors about the ECB having purchased at least 800 million euros ($1 billion) of covered bonds in the first four days of program (as opposed to €1.5bn in the first month of the last covered bond program in November 2011) fueled optimism.
MADRID | By Julia Pastor | Even though the ECB dismissed the rumours about its intentions of buying corporate bonds, all market players are asking for stronger actions by the central bank. Such measure could become the ace up the ECB’s sleeve for its December meeting. Given the liquidity surplus in the companies’ debt market (due to the “low interest rates, not to cheap credit,” as experts at Renta4 pointed out), including this sort of assets could add to such surplus.
ZURICH | UBS | The impact of an EU slowdown on US growth would be minimal: US exports to the EU are a small proportion of GDP (2.8% in 2013), and the secondary effects—the impacts on major US trading partners’ incomes and import demand—are even smaller. For example, a hypothetical 1 percentage point slowing in EU real GDP growth would likely translate into only a 0.1 pct pt drag on US real GDP growth via weaker exports to the EU and to other US trading partners affected by the EU slowing.
MADRID | By Álex García.
LONDON | By Soren Willemann at Barclays | Credit spreads (here, iTraxx Main) have a strong relationship to the ZEW survey of eurozone expectations for economic growth (Figure 1) over long time horizons. In the past months, however, this relationship has shown a significant disconnect: the ZEW survey reveals a material worsening of sentiment, whereas credit spreads have been largely unchanged.