ECB Preview: The Economy Continues To Recover And The Inflation Outlook Is Muted.

Peter Allen Goves (MFS Investment Management) | The overall macro picture has not changed significantly since the June meeting. The economy continues to recover and the inflation outlook is muted. We still see enough flexibility in the Pandemic Emergency Purchase Programme (PEPP) to combat any unwarranted tightening in financial conditions. The June targeted longer-term refinancing operation (TLTRO) was a successful exercise and the extra liquidity added (around €550bn) is seen as enough to support the private sector into the recovery phase (or at least reduce liquidity crisis). Overall, we do not believe there is a strong need for further action from the European Central Bank (ECB) at the current juncture. If anything, the ECB communication will be closely watched.

The Appeal Of Investing In Banks Is Very Strong: Expectations For Revaluation Are Close To 100% In A 1-2 Year Period

Ofelia Marín-Lozano (1962 Capital SICAV) | The starting point is much more solid than in 2008, when the banks emerged from many years of double-digit credit expansion and high rates. In addition, European banks have significantly improved their equity base, which is double, or even almost triple, the levels reached a decade ago in all their solvency ratios. The ratio of higher quality capital to risk-weighted assets, (CET1 or common equity tier 1) has risen from levels below 6% in 2011 to over 14% today. 

Lagarde Has Done Another Good Job

Olivia Álvarez (Monex Europe) | The ECB delivers on market expectations and steps up the total amount of quantitative easing under PEPP purchases by €600 billion. The rise outperformed the consensus call by at least some €100 billion, bringing along a stronger-than-expected market reaction. The program firepower, worth €1.35 trillion now, is set to channel the main recovery mechanism by the ECB, which is vocally reinforcing its accommodative stance amid the current recession environment.

ECB preview: Could come across with hawkish tone

The ECB May Have To Raise PEPP By EUR 300-400bn In June

BofA Global Research | We cut our Euro area GDP forecast to -8.3% this year and +4.6% next. The recovery will be weak, permanent income losses big. Fiscal stimulus is not enough to boost consumers and capex. Deficits will still be very big, c 17% cumulatively in 2020/21. The Franco-German initiative helps sentiment earlier than growth. ECB help will remain crucial. PEPP has to double, at least.

The ECB Responds Without Hesitation To German Constitutional Court Ruling But Must Build Bridges

Intermoney | In the name of the ECB independence, Christine Lagarde, made it clear that the only guide for the institution is the fulfilment of its mandate and no resources or efforts will be spared in this task. Once the central bank has made it clear that it does not accept the authority of the German courts, it must move on towards a more political phase in which it can build bridges and provide a solution to the problem. If it does not do so within three months, the Bundesbank could find itself in a difficult legal mess.

Christine Lagarde says the GDP is expected to drop between -6 and -12% for 2020

Philppe Waechter (Ostrum AM) The main point on the ECB meeting is the large uncertainty contained in the GDP forecasts. Last March, the ECB forecast was +0.8% for 2020. Today, Christine Lagarde said the gdp was expected to drop between -6 and -12% for 2020. That’s a huge revision reflecting uncertainty for the foreseeable future.

ECB Preview: Standby

Konstantin Veit, PIMCO, Senior Portfolio Manager European Rates Desk | The ECB meets on Thursday, and while we believe the Governing Council will strongly reiterate its readiness to do whatever it takes we don’t think any far reaching monetary policy decision will be taken at the April meeting. There is a chance for the ECB to clarify the treatment of “fallen angels” within the various asset purchase programs, whereby we expect grandfathering in line with the recent changes to the collateral eligibility framework to make head against pro-cyclicality.

ECB stimulus package

ECB Takes The Highway To High Yields

Bank of America Global Research | On 22 April 2020, the ECB announced temporary measures to mitigate the impact of possible rating downgrades on collateral availability. This includes the acceptance of certain non-investment grade rated assets as collateral for its credit operations. In the collateral easing measures announced on 7 April, the central bank announced plans to temporarily mitigate effects from rating downgrades.

The Euro-bazooka Lacks Enough Ammunition

J.P. Marín Arrese | The Eurogroup painfully struck a middle of the road deal in its second meeting, once Italy and Holland agreed to compromise. At face value, the funding facilities amounting to half a trillion euros look rather impressive. Yet, a closer glance at them shows they lack the necessary ambition.

Quantitative easing now looks permanent – and has turned central banks into pseudo governments

Quantitative Easing Now Looks Permanent–And Has Turned Central Banks Into Pseudo Governments

via The Conversation | After a pause of a few months, the world’s leading central banks are “printing” money again to try to bolster their economies. Commonly known as quantitative easing or QE, the European Central Bank (ECB) resumed its programme just before the turn of the year. The backdrop is lukewarm growth, a looming recession in Germany, and persistent fears of Japanese-style deflation.