Both main central banks face a challenging outlook. The ECB may have saved the day recently by showing it still commands enough firepower to support the economy, even if its room for manoeuvre seems hopelessly narrow. The Federal Reserve seems caught in a nasty trap.
The European Central Bank (ECB) has allowed Banco Santander to apply its own capital calculation model for its Brazilian subsidiary. The approval arrived seven days after Santander presented its 2015 results, so they don’t reflect the effect of the new measure.
UBS | President Draghi surprised the market positively, both in terms of the magnitude of some of the expected moves (QE extension in the upper end of the range) and also implementing new measures (acquisition of non-financial IG bonds in its asset purchases, and new targeted TLTRO). For (retail) banks like the Spanish, the balance of ECB’s actions has to be considered as positive, especially if trends seen in the swap market are confirmed in Euribor fixings.
The ECB’s main priority will be to fuel confidence in the financial markets and inflation will be its alibi for this. In February, eurozone CPI receded to -0.2% year-on-year and, in the short term, the region should be prepared for negative rates to continue.
UBS | Our base case forecasts for China’s growth are already below consensus at 6.2% for 2016 and 5.8% for 2017. In this note we study the impact on global economies and assets of a much darker and, in our view, extremely unlikely scenario where China real GDP growth slips to 4%, and nominal growth below 1.5%.
The market has already priced in that the ECB will adopt new monetary stimulus measures at tomorrow’s meeting, which in theory should boost growth and inflation in the eurozone. Analysts agree that more aggressive measures are necessary, but due care must be taken not to damage financial stability.
Barclays | Both ECB’s Vice President Constancio and Chief Economist Praet warned of a potential macroeconomic impact of Paris terrorist attacks last Friday although the noted that these types of events generally have a transitory effect on the economy.
Even if money supply growth in the eurozone slowed by 0.5% to 4.8% in August, credit to households increased by 1% to 1.4%. In particular, mortgage loans rose 1.6% compared to July.
While Yellen bet on increasing rates, China’s slowdown concerns Draghi, but he is not considering further stimulus for the time being, says Gabriel Marqués at Intermoney.
LONDON | April 21, 2015 | Barclays | The ECB remains committed to deliver its QE target of a more than €1.1trn balance sheet expansion through asset purchases and sought to dispel fears over asset scarcity.