MADRID | By Francisco López | The strength of the dollar –which is in maximum levels and has appreciated by almost 11% against the euro since January 2014, has started to cast doubt among market watchers. Some experts consider that such strong appreciation does not correspond to Janet Yellen’s cautious decisions or to the low inflation expectations at a global level, which leaves room to central banks to maintain loose monetary policies.
MADRID | The Corner | Expect the market to stagnate in the days ahead, as markets continue to slump in the wake of the ECB’s disappointing announcement last Thursday and growing differences between the central bank’s counselors, who have failed to agree on how to back ABS purchases. Whether it’s due to technical or fundamental reasons, the reality is that France (Mr Noyer) is against granting such state guarantees, in addition to Germany (Mr Weidmann) and Austria (Mr Nowotny).
SAO PAULO | By Marcus Nunes at Historinhas | European Central Bank President Mario Draghi used Hercules to illustrate the challenges facing European policymakers to get the eurozone economy out of its doldrums.
MADRID | The Corner | The ECB disappointed all those who were keen to gain more concrete information on how it wants to expand its balance sheet over the coming months. Instead, Mr Draghi pointed out that inflation expectations, not balance sheet size, remain the ultimate yardstick of current and future ECB action. “We think this is the right communications strategy as we had become concerned that the ECB would set fairly explicit balance sheet targets that it might struggle to attain. The ECB offered a more cautious assessment of the growth and inflation outlook and left the door open for additional unconventional measures. Nevertheless, our base case scenario remains that sovereign QE will not be triggered,” UBS analysts commented.
MADRID | By Julia Pastor | While the idea is spreading that the ECB can become the European “bad bank” if it finally buys securities from Greece and Cyprus, our readers should note that the ABS market is too small in some EU countries such as Spain. Also, many issuers do not even have a credit rating and those who have it would not obtain more than a BBB-. The reality is that there is not much “junk” to buy.
Madrid | The Corner | We imagined the ECB wouldn’t unveil specific details about the size and form of its next move. Mario Draghi just explained on Thursday that they will be acquiring private sector assets: covered bonds from eurozone banks in mid-October and asset-backed securities (ABS) at some point in 4Q14 and for at least two years. The Frankfurt based institution kept rates at 0.05% and will be expanding its balance sheet up to March 2012 levels, which is, €1Tr, in order to spur the economic recovery.
MADRID | The Corner | Mario Draghi will finally reveal the details of the private debt purchases program on Thursday. Markets take for granted that he will continue feeding expectations that he is willing to do more if necessary. The ECB’s President is however not likely to announce the acquisition of retained ABS, nor to include the so-called mezzanine tranches. As for the rumours about Mr Draghi pushing the ECB to eventually buy bundles of Greek and Cypriot bank loans with “junk” ratings, our readers should note that those tranches would be senior, and in very small amounts. However, “symbolically is an important issue about what they are willing to do,” JPMorgan analysts pointed out on Wednesday.
MADRID | The Corner | As Greece and its euro-area creditors meet on Thursday to review its progress ahead of another round of talks on repayment terms for its public deb, the worst for Athens seems to be over. The Mediterranean country doesn’t need a haircut, its debt is sustainable, as head of the EFSF ESM Klaus Regling commented in Brussels on Tuesday. However, and despite the profound, painful reforms the country has been through, recovery is hampered by private debt of households and companies: about 164 billion euros ($208 billion), 90% of GDP.
MADRID | The Corner | The ECB president announced his intention to push for the central bank to accept Greek and Cypriot bank loans with “junk” ratings to bolster the frail recovery in the Eurozone’s periphery.
MADRID | The Corner | The divergence between the different central banks’ monetary policies is increasing tension in Western financial markets (variable, fixed-income and forex) , leaving many investors clueless. Volatility is expected to increase in the coming months, which will add tension to the picture. In the short term, investors will want to determine if central lenders are correctly interpreting the macro scenario. That is why macro economic indicators which will be published in the coming days have so much relevance. 11 a.m. final reading of euro-area consumer confidence, which remained unchanged at minus 11.4 in September.