Stimulus desync

EU banks are looking forward the Autumn to come: the ECB’s upcoming TLTRO will be an attractively priced source of funding for entities, particularly in the periphery. They will be able to borrow up to EUR400bn, or 7% of their outstanding loans to non-financial corporates and households, excluding mortgages. And, important, they can borrow irrespective of the purpose of borrowing – hence also for the purchases of sovereign bonds (although they would have to pay back the funds in September 2016 if they do not increase their lending to the private sector, UBS analysts remind).

And meanwhile, the Fed and the BoE are on the opposite side of the road.

Amid signals of recovery, Bank of England has kept interest rates steady at a record low 0.5% and declined to pump more money into the economy. So far the central lender has pumped 375 billion pounds ($600 billion) into the economy through its bond-buying program over the past 5 years.

In the US, Janet Yellen’s plan is to wait until well into 2015 before it considers raising rates. Of course the schedule may be brought forward if non-farm payrolls continue to expand at their current rate. Markets are expecting a further $US10 billion tapering at the end of July.