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ECB – Most likely done now

ZURICH | By UBS analysts | On 5 June, the ECB delivered a comprehensive monetary policy package, comprising cuts in the refi rate (from 0.25% to 0.15%), the deposit rate (from zero to -0.1%) and the marginal lending facility (from 0.75% to 0.4%). The ECB also rolled out the ‘full allotment mode’ – the commitment to supply unlimited liquidity (against adequate collateral) at the refi rate – from July 2015 to December 2016, and it will inject liquidity by ending the sterilisation of the Securities Markets Programme (SMP) portfolio. 

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European stock markets, harmed by US sluggish GDP

MADRID | By Francisco López | The first world power is doing worse than expected. USA’s GDP decreased in 1Q by 2.9% year on year, nearly three times the 1% foreseen just a month ago and far from 1.8% that Wall Street expected. European stock markets, unlike the American, reacted immediately with heavy losses. Spanish Ibex 35 leaded the way losing 1.25 and finished below 11,000 points.

Mark Cartney moonwalks from rates hike

MADRID | The Corner | After being accused to send mixed signals to the markets (one British MP even compared him to an unreliable boyfriend), Bank of England’s governor Mark Carney backed off and played down the chances of raising interest rates. After all, Bundesbank’s Jens Weidmann may be right: cheap money can be as addictive as a drug. 

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The euro goes negative

NEW YORK | By Dickson Buchanan Jr. via Truman Factor | The European Central Bank’s (ECB) decision to charge a negative interest on overnight deposits is not going to lead to a higher targeted inflation rate, despite ECB President Mario Draghi’s insistence that it will. Like all cases of central planning, this decision will have unintended and costly consequences – some of which are already starting to play out. 

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Draghi will have to do more than lowering interest rates

MADRID | By The Corner | Head of economic analysis at Link Securities Juan José F. Figares explains that if the ECB only reduces interest rates (i.e. intervention and deposit rates), stock markets will plummet since investors’ expectations will not be fulfilled.  Should the central bank activate a new conditioned LTRO and open the door to a new asset purchase program, he adds that markets will react neutrally first and then, they will become positive. Note that the Eurozone’s GPD grew only by 0.2% in the 1Q14, according to the Eurostat.

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European Hunger Games: The Threat of Importing Deflation From Emerging Markets

By David Denton via The Richter Scale | For anyone who was growing up in the 1970s there is a short list of things that one has to be concerned about:  The music of The Bay City Rollers, the instant pudding – “angel delight”, playing rugby against the Welsh and inflation. Although the oil price shocks affected all industrialised economies inflation had a particularly severe impact on the UK, we quickly became known as the sick man of Europe.

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Interest rate moves are out of sync with inflation, what next?

LONDON | By Michael Gavin at Barclays | The 2013 sell-off in interest rates in the global currency areas has been driven entirely by perceptions that economic activity is on course to continue its recovery; inflationary pressures have been conspicuous only for their absence in all major currency areas except Japan, where the (still limited) pressure is welcome. This likely explains why equity markets in the advanced economies were so resilient to the backup in US and global rates and why the brunt of the 2013 bond sell-off was borne largely by the long end of the curve.

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How to call fear of bubbles? Paranoia maybe?

MADRID | By Luis Arroyo | The shadow of deflation looming over the euro zone economy have seemingly gone away on Friday. The statistical office Eurostat anticipated an estimated 0.9% yearly inflation rate, two percentual points under last October registers. However, being afraid of deflation is not a nonsense because next banking recapitalisation points that credit is to tighten.

Central banks’ tightening: Learning to live without $33 trillion

WASHINGTON | By Pablo Pardo | The party is about to end. It is a party that has lasted six years. According to Bank of America/Merrill Lynch, during that time, the approximately 173 central banks that exist worldwide have lowered interest rates 520 times and pumped in approximately $33 trillion into the world through different mechanisms, some of them extremely unconventional.