Spain’s government bond rating has been upgraded by Fitch to A- from Baa+, Greece has also seen the rating lifted by Standard &Poor’s, and the US once again experiences a shutdown of non-essential government operations. The biggest topic for the bond market, however, will be the press conference of the European Central Bank (ECB) scheduled for Thursday.
After nearly a decade of easy money, the financial markets and the economy have not just become addicted to debt, but also indifferent to the continued growth in global debt.
Analysts at Bankinter offer an investment strategy for the European banks ahead of the new year. Overall they reiterate their recommendation to maintain a structural position in banks due to the improvment in the quality of their balances and the recovery in business volumes.
Both the Fed and the ECB remained gradual and predictable in their last week meetings as far as monetary policy is concerned. In opinion of Julius Baer, this prevented EUR/USD from taking a specific direction, “but monetary policy in the US and the eurozone are still diverging and justify a slightly stronger US dollar in the next month.”
The ECB could first check how the market reacts to the actual halving of its purchases in January, and how the run-up to the Italian elections shape up, before changing its message.
As expected by markets, the ECB announced that it will continue buying bonds in 2018, albeit at a reduced pace of monthly €30bn for another nine months until September 2018.
The ECB is expected to announce a reduction, or tapering, of its asset purchasing programme at today’s council meeting. In opinion of David Kohl, chief currency strategist at Julius Baer, “financial markets are well prepared for less support from monetary policy.”
The IMF has just upped its forecast for global growth by one-tenth of a percentage point to 3.6% and 3.7% respectively for this year and the next. The message from the supranational organisation is relatively positive: over 75% of the world is seeing an acceleration in its rate of growth.
The central banks are still powerful. They can make the financial markets rise or plunge them into the doldrums. But the CBs need to scrutinise the financial system and its systemic risks more closely.
Intermoney | There is little in the way of significant economic data due out in Europe today, so the main focus will be on the minutes of the ECB’s last meeting.