ZURICH | UBS analysts | Our central case is that we will not have deflation in any country except for Spain in 2015. But we cannot rule out the possibility of deflation, so here we look at assets that may outperform during periods of deflation. Generally deflation is bad for equity which de-rates aggressively but the story is more nuanced because particular sectors and styles are affected quite differently.
MADRID | By J.P. Marín Arrese | In the OMT case brought before the EU Court of Justice by the German Constitutional watchdog, the Advocate General has delivered a positive opinion. As the Court usually follows such opinions, the last hurdle for implementing the planned QE has been lifted. Yet, the Advocate General sets a number of requirements that will curtail the ECB’s room of manoeuvre.
LONDON | Barclays analysts | The European Court of Justice has already published its opinion about the Outright Monetary Transaction (OMT): the ECB’s anti-crisis plan was “necessary” and “in principle” is in line with EU law. This much awaited opinion will have important implications for any broad-based ECB government bond purchases (QE), which we think are likely to be announced next week.
MADRID | By J.P. Marín Arrese | The Spanish Justice Department has launched a thorough investigation into the accounts which were submitted prior to the original BANKIA share issuance back in 2011. Experts from the Bank of Spain have delivered a devastating report implying these accounts did not provide a fair elucidation of the balance sheet. Should the final ruling follow that line, it could open the way for multi-billion euro claims from investors. Even though BANKIA has announced it can cope with such losses, with taxpayers footing two-thirds of the bill, the impact on Spanish financial market credibility could wreak havoc.
MADRID | The Corner | ECB staff members have presented models for buying as much as €500 billion ($593 billion) of investment-grade assets, mostly sovereign bonds, according to sources close to the Governing Council. This will amount to an incomplete, partial solution according to some analysts. “It looks like a lot of money, although it won’t be enough” to expand the lender’s balance sheet by €1Tr as is planned, said Alberto Vigil of Barclays on Monday.
ZURICH | UBS analysts | In addition to setting out our thoughts by sub-sector (capex, mobile devices, semis), we outline themes and stock specific catalysts for 2015, including a review of potential M&A and possible hikes in cash returns. We also highlight each stock’s investment drivers (positive and negative) through 2015. In general we see another robust year for semi capex, softer telecom capex (but stable vendor revenue), ongoing strong growth in low end smart-phones, a medium-term inventory correction in analog semis (with solid underlying trends), and the continuing emergence of mobile payments.
BRUSSELS | By Alexandre Mato | Just 15 people will supervise the restructuring and liquidation of financial institutions from the beginning of 2015. The Single Resolution Board (SRB) will be composed of around 50 staff for this important task when it undertakes the remit in the spring.
Iris Mir | China’s real state market is cooling down. Rampant investment in the past few years has caused lingering oversupply and a drop in investment prices. Property developers suffer a very risky lack of liquidity and limited access to credit that prevents them from being able to repay previous loans. China’s real state sector represents a 15% of the national GDP; and it plays a crucial role in other sectors. The government is very keen on lending all the necessary support to maintain the speculative frenzy. But analysts believe that recent measures will not solve the structural problems of the housing market.
WASHINGTON | By Pablo Pardo | Do you want a Who’s Who of the Republican talking heads? If so, go to this list. Those are the luminaries that asked the Federal Reserve not to go ahead with the Quantitative Easing in 2010, for fear of inflation and currency debasement. Four year later, inflation is nowhere to be seen, and, according to the IMF, the US dollar has strengthened its role in the monetary system.
LONDON | UBS analysts | UBS expects the ECB to widen its asset purchase programme to include corporate, parastatal and sovereign bonds on 5 March 2015. Our base case is for €1 trillion of sovereign bond purchases to be undertaken over a two-year time horizon. In this note, we examine how a broadening of the ECB’s QE programme is likely to impact the UK economy and sterling-denominated asset classes.