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 | The Corner | The ECB’s non-conventional measures, the banking restructuration and the adaptation to the new regulation make 2015 a crucial year. According to experts at Morgan Stanley, the many stories about restructuration, dividends and regulatory changes will allow to differentiate the performance of the different assets.
ZURICH | UBS analysts | Corporate bond markets in Europe have been quite resilient through these past few sessions in both IG and HY, offering relatively good outperformance. It would appear it is increasingly becoming a case of just buy it (corporate bonds), because that’s what’s best. Don’t worry, one will be looked after – the ‘structure’ after all is in place. There may be no growth, but you are promised low interest rates (zero at the front end), low funding yields (lowest ever, iBoxx corporate bond yields at 1.4%), a low default rate (less than 3%) and your money back at maturity.
SAO PAULO | By Marcus Nunes via Historinhas | The European Central Bank opened the door to a dramatic escalation in its campaign to stimulate the eurozone’s stagnant economy early next year, signaling a new chapter in the bank’s fight against excessively weak inflation in the heart of Europe. ECB President Mario Draghi said after the bank’s monthly meeting that officials discussed purchases of government bonds, known as quantitative easing or QE, but that they needed more time to gauge the effects of policies that they have already implemented while assessing how falling oil prices may affect the bank’s consumer-price outlook.
MADRID | By JP Marín Arrese | The radicalism of Podemos (we can) has won widespread popular support in Spain, scoring an astonishing result in the latest European Parliament election. It now runs a bitter neck-and-neck race alongside the two mainstream political parties. Its charismatic leader, Pablo Iglesias, has delivered devastating blows to opponents across the board, mercilessly portraying them as a corrupt “caste” all too eager to preserve their petty privileges, while bending to wealthy establishment’ interests. Yet, in an open bid for power, Podemos has undertaken a sweeping U-turn, transforming itself into a conventional party. Its leader has taken over as General Secretary and immediately launched discussions for setting up an economic manifesto.
By Suki Mann and Thibault Colle (UBS) | We effectively have four-weeks of business left in 2014 and the path is clear for corporate bond markets to record some more upside in performance. That isn’t as welcome as it might at first look. Because we do actually need something for next year. We’re already sitting on excellent returns for 2014 of 7.7% in IG and 5.6% in HY; and with that, record low yields in IG (1.42%) and spread levels not seen since before the crisis (iBoxx IG at B+101bp). Supply in HY is at a record level (€72bn YTD) and we now have the second best year for issuance ever in IG non-financials (€201.6bn) after Tuesday’s deals from BskyB and RCI are accounted for.
MADRID | The Corner | According to CMC Markets’ analysts, “none of this week’s data from Europe has done anything to persuade markets that the European Central Bank won’t ultimately be forced into taking further action to help boost economic growth in the euro area at some point in the next few months.” Be that as it may, the Governing Council of the ECB will meet on Thursday to keep on working on the EZ economic recovery. Experts at Link Securities say that there won’t be any new measures for the monetary policy, although they believe Mr Draghi will announce the possibility of taking new actions to boost growth.
LONDON | Barclays analysts | Central banks will remain in the spotlight this week, with banks in Europe, UK, Australia, Malaysia, Thailand, Poland and the Czech Republic all set to deliver policy decisions. Of these only the NBP in Poland is likely to move, cutting policy rates by 25bp, in our view. However, most attention will be on the ECB for any hints of future QE, as economic data remain a challenge.
John Bruton | I recently attended a conference that looked at France’s domestic economic situation, and the impact that has on the country’s global and European role. According to budgets published in October, France and Italy are failing to meet the eurozone’s requirements for reducing government debts and deficits to sustainable levels.
LONDON | By Keith Parker at Barclays | The recent risk aversion episode has raised concerns that global growth and inflation are continuing to fall. While the collapse in oil is flashing red, copper prices and industrial metals have had a more measured decline. Copper has historically been a good barometer for global production and is pointing to continued sluggish growth, but not another leg down.