MADRID | By Jaime Santisteban | Stock markets ended May trading high: +3.1% in Spanish Ibex 35 and +2.1% in EuroStoxx. We start a busy week for markets with all eyes set on Thursday’s ECB rate announcement. “The central bank is a slave of its own words and cannot afford to disappoint,” some analysts are pointing out.
MADRID | By J.P. Marín Arrese | Markets are discounting an easing in European monetary policy in the forthcoming days. Yet, the mood in the ECB is far from cheerful. It feels being dragged into action by political constraints.
BERLIN | By Jean Pisani-Ferry via Caixin | The small world of central bankers, market participants, economic officials and financial journalists is feverishly debating whether the European Central Bank (ECB) is about to embark, and should embark, on an unconventional monetary policy course. For the outsider, the whole discussion may look odd: Why has the issue become important? Hasn’t the ECB already embarked on such a course?
MADRID | By The Corner | As the Spanish sovereign bond is at minimums (2.8%) and the volume of debt has attained maximums (98%), Bankinter analysts point that low rates along with the large volume of issuances make European fixed income highly sensitivity to the risk premium ups and downs. High yield European firms are placing their bonds at historical minimum of 3.73%, when the average of the last 15 years is 10.19%. One of the risks the ECB is highlighting is the return of financial instruments that boosted banks’ leverage and resulted in the 2007 economic downturn.
LONDON | By Barclays analysts | ECB is going to cut its policy interest rate and/or announce targeted liquidity measures, with a view to support bank lending at the 5 June Governing Council meeting. In his remarks at the ECB Forum on Central Banking being held in Portugal, ECB President Draghi highlighted the risk of a negative spiral between low inflation, falling inflation expectations and credit for the euro area.
LONDON | By Barclays analysts | The latest disappointing inflation and growth data have reinforced market expectations of ECB action(s) in June. The significant rally of short rates seems consistent with expectations of a policy rates cut, as well as a chance of additional liquidity injections. At this stage, we see limited room for a further rally and suggest paying tactically 1y Eonia.
MADRID | By Jaime Santisteban | The most critical voice about the ECB’s doing something about the euro zone’s persistent low inflation, Bundesbank President Jens Weidmann, said on Monday that the ECB will watch the euro’s exchange rate closely before taking policy decisions. Also, AstraZeneca turned down the allegedly “last” bid offer from Pfizer, worth €8bn.
MADRID | The Corner | Mario Draghi says the ECB is comfortable with taking action in June, and markets see it as a more or less done deal. This time the Bundesbank is not likely to say a word, as basic economic theory shows there is not much else to discuss: when money is pumped into a system, it shows up either like inflation or growth. And the Eurozone needs both.
MADRID | By Jaime Santisteban | Stock indexes struggle to stay in the course after widespread drops, although weakness losses intensity. The EZ grew by 0.2% in 1Q14 (0.9% y-o-y), half the estimates, strongly disappointing market makers. This speed won’t be enough to support recovery.
MADRID | By Fernando G. Urbaneja | In the midst of the financial turmoil (2012), the ECB facilitated liquidity to avoid the collapse of the European banks when the inter banking market was dried up and nobody lent money. The central bank had to act as “last resort banker” and maintain the system as well as guarantee liquidity. Those credit lines are amortized once their function has been accomplished. Now, they are preparing other measures to stimulate growth and avoid other threats such as deflation or stagnation.