LONDON | By Soren Willemann at Barclays | Credit spreads (here, iTraxx Main) have a strong relationship to the ZEW survey of eurozone expectations for economic growth (Figure 1) over long time horizons. In the past months, however, this relationship has shown a significant disconnect: the ZEW survey reveals a material worsening of sentiment, whereas credit spreads have been largely unchanged.
ATHENS | By Manos Giakoumis via MacroPolis | Greek banks are always at the forefront of domestic market developments. Despite the strong rebound of 6.4 percent on Friday, their shares still recorded cumulative losses of 7.8 percent last week and 23.9 percent over the past three months. Concerns about the outcome of the upcoming comprehensive assessment European Central Bank are one of the key factors weighing on investors’ minds.
MADRID | The Corner | ECB’s president Mario Draghi is attending two speaking engagements today, where he is expected to insist on the central bank’s determination to deploy its unconventional measures if necessary, given the eurozone’s gloomy macro picture.
MADRID | The Corner | “Further evidence has emerged that the euro area recovery is at risk. We acknowledge that German data were distorted by technical factors… but we still think underlying momentum is fading in Germany,” Barclays’ François Cabau commented. And that means, for an increasingly number of experts, that the prospect of QE II is becoming more entrenched. Some believe it could happen before New Year.
MADRID | The Corner | The European Central Bank’s Outright Monetary Transaction (OMT) will be back on the front pages on Tuesday. The European Court of Justice (the EU’s highest tribunal) will have to respond to the challenge of German judges, who said the OMT can be seen as monetary financing of governments, banned in EU treaties. “Every time the monetary union takes a step forward, German individuals and/or civil or political groups file a case with the Constitutional Court in Karlsruhe,” our senior analyst Luis Martí commented.
MADRID | By JP Marín Arrese | No need to wait for IMF forecasts. The hasty downfall in oil prices signals a steep deterioration in most export-led economies, ranging from China to Brazil. An upsurge in the US dollar coupled with prospects of more stringent credit conditions, are rapidly changing the global mood towards risk aversion. As hot money flees emerging countries bogging down their investment plans, main suppliers of capital goods such as Germany become increasingly crippled.
MADRID | The Corner | Although employment is not in the central bank’s mandate, the European Central Bank’s October monthly bulletin focuses on the impact of the economic crisis on euro area labour markets. “Monetary policy is focused on maintaining price stability over the medium term and its accommodative stance contributes to supporting economic activity. However, in order to strengthen investment activity, job creation and potential growth, other policy areas need to contribute decisively.”
FRANKFURT | By Lidia Conde | It is time to grow! Well, that’s everybody’s motto. However nobody agrees on how. That’s why the European Central Bank is moving ahead with its bond-buying program. After all, if the ECB steps away from its inflation target, the structural unemployment rate would increase and the potential economy growth would be reduced.
MADRID | The Corner | The ECB doesn’t like the idea of allowing banks to use Deferred Tax Assets (DTA) to boost their capital buffers, a practice that was meant to be phased out under new European Union rules. The central lender fears that losses would be imposed on taxpayers should entities run into trouble in the coming years, as the WSJ reported. Even if the ECB doesn’t have the power to change that, and is not likely to make any move before the upcoming stress tests, it might push for DTA to be replaced by core capital.
MADRID | The Corner | Expect the market to stagnate in the days ahead, as markets continue to slump in the wake of the ECB’s disappointing announcement last Thursday and growing differences between the central bank’s counselors, who have failed to agree on how to back ABS purchases. Whether it’s due to technical or fundamental reasons, the reality is that France (Mr Noyer) is against granting such state guarantees, in addition to Germany (Mr Weidmann) and Austria (Mr Nowotny).