Today’s market chatter: Bundesbank opening to QE and much more

Low inflation was the one to achieve the impossible. According to The Wall Street Journal, the Bundesbank would support stimulus measures from the ECB in next June meeting. Germans are so concerned about prices’ weakness that extraordinary actions like negative deposit rate and credit purchase might be adopted. Inflation outlook for 2016 is due in June and could be decisive when it comes to get Berlin support for an eventual ECB intervention. The well-established conservative opposition to urgent measures to fight  debt crisis could be gone soon.

Spain will sell inflation-linked bonds next week for the first time in a wider program aiming at widening public funding options. France, Germany, Italy or the US execute this issuances as a normal practice. The three biggest Eurozone economies currently have a volume of debt linked to rising consumer costs worth more than €420bn. AFI analysts explain to investors that this guarantees the purchasing power of invested capital. Beyond this feature, as a nominal bond implicitly includes in profits a inflation forecast, we must keep track of the consumer costs evolution in the next years. Inflation breakeven is commonly used to measure market expectations in diverse economies. According to it, inflation is foreseen at 0.9%-1.1% in the next five years for major European economies.

CORTAL CONSORS analysts expect a 15 basis points drop in interest rates. Also, medium-term LTRO may come up.  After the last meeting, the ECB boosted prospects for moves in June. They still have margin to reduce rate. Last April, Draghi shows his preference for prefer conventional measures to take steps in the event of monetary condicitions tightening prompted by exchange rate appreciation.

Repsol resumed production in Lybia. Rebels OKed west plants reopening after government decided to call for election. The company operates in Sharara with a 340,000 barrel daily capacility. Last year stops impact was worth €166M and so far in 2014 €47M (50 days).  ACF foresees appreciation in the market after this business risk fizzled out.

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