The yield differential between the Italian and Spanish 10-year bonds has risen 21 basis points since the start of September and stands at around 34 basis points. We expect a recovery in the differential, which will be gradual and limited to 50-55 bps, up until Italy holds its referendum on constitutional reform.
AXA IM | While the magic of Mario Draghi was being fully played out, the economic and financial outlook looks on an improving path to recovery in a post-crisis world. Clouds in this blue –but not entirely clear– sky may emerge from the political sphere.
Jens Bastian via Macropolis | The rising volume of non-performing loans (NPLs) across various eurozone countries, in particular in southern and southeastern Europe, has been a constant challenge for policymakers in recent years. Moreover, their high NPL levels on bank balance sheets have impaired the asset quality of domestic lenders and necessitated an increasing amount of provisioning, thus binding up valuable capital that could otherwise be lent to the real economy.
In Sober Look, Marcello Minenna gives us a clue about a possible new breach in the euro’s structure. A few years ago (2011-2012), when the euro was going through its worst time, one of the consequences was that the central banks in the peripheral countries increased their debt position with TARGET2.
UBS | Il Messaggero published yesterday a draft memo with some details of Atlante, the system -wide fund that has been created to secure banks’ recapitalisations and purchase NPLs.
BofA Merrill Lynch | Rome has designed a comprehensive strategy, in which reforming the institutional and economic structures is made politically manageable by loosening fiscal policy. This comes at an external price – more tense relationship with Brussels and potentially Berlin – but at least the brief is clear. It remains a narrow road though, with political and cyclical risks abounding.
James Alexander via Historinhas | Despite all the pessimism the Euro Area nearly caught up with US NGDP growth in Q4. Now that Italy and Spain have finally reported their Nominal GDP figures Eurostat shows that 4Q15 NGDP growth for the Euro monetary region as a whole was almost as fast, year-on-year, as the US.
The European Banking Authority (EBA) has finished defining the nature of the stress tests, as well as the scenarios the 51 largest European banks will be subject to in 2016. But given the situation of the Italian and German lenders, after the last stress test, there are more and more people who believe there is a certain amount of complicity going on to hide the real situation of many of the banks in both countries.
Nick Ottens via Atlantic Sentinel | Italy’s prime minister, Matteo Renzi, has lately taken a hard line against the rest of the European Union, warning that German-inspired austerity is fanning the flames of populism.
James Alexander via Historinhas | While we firmly believe NGDP expectations are the best guide to monetary policy we are still some way from having a proper market measure of those expectations. However, two of the peripheral countries, Spain and Italy have now produced their first estimate of NGDP for 3Q.