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Morning coffee: Scotland polls and TLTRO

MADRID | The Corner | FOMC’s conclusions (the Fed is renewing its pledge on low rates) meaning little changes to the current rates scenario, the spotlight has shifted to the Scottish independence referendum (final results to be released around 5:30-6:30 GMT on Friday), which is presumably going to have an impact on European financial markets today. Also the ECB is publishing the results of its much-awaited first TLTRO operation today. It’s the most important cheap cash offer from the central lender since the beginning of the economic crisis which has been very popular in Spain and Italy. Spanish banks will aim for €30bn, Economy Minister said on Wednesday.

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ECB: We need a QE shot (not 17 of them, JPMorgan)

MADRID | The Corner | It’s speculation day before the European Central Bank’s tomorrow meeting. Will a QE plan finally be announced? Experts at Santander bank think that, if announced too early, it could damage TLTROs. JP Morgan economists believe there is a 30% chance we’ll get a QE shot in 2014, 50% next year. And they’ve come with a proposal we find erratic: 17 different bond buying plans, one for each state member. That is exactly the opposite direction the EU needs to be heading to.

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ECB might wait to take further action

Madrid | The Corner | Despite last bad figures of the Eurozone economy, European stock markets are rising on expectations of ECB further action. However, it seems that ECB will wait to see if the actions taken until now and the TLTROs of September and December will take effect. Meanwhile, both Barclays and UBS analysts trust in these measures to support European recovery.

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ECB’s Praet: TLTRO will break the lack of credit’s vicious circle

MADRID | The Corner | Upcoming TLTRO in Sept 18 and Dec 11 will allow EZ banks to borrow an amount equivalent to 7% of what they currently lend to the private sector at 0.25% a year (excluding interbank loans and mortgages), breaking the vicious circle of high lending rates to companies, high credit risk and a sluggish economic performance, European Central Bank’s chief economist Peter Praet said on Wednesday. 

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Will ECB credit boost work?

MADRID | By J.P. Marín Arrese | Mario Draghi unveiled the requirements to be met for drawing cheap money from the targeted long-term facility on Thursday. Those look extremely loose and scarcely demanding. Banks may cash up to 7% of their net lending to businesses and households in the auctions scheduled later on this year. A move that could lead to a massive €400 billion funding injection, should bidders make full use of their potential rights. Borrowing four-year tranches at interest rates so low as 0.25%, seems indeed an unbeatable incentive. 

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The TLTRO clashes with the old LTRO

MADRID | The Corner | The liquidity net increase of the new measures by the ECB may be substantially less than expected, because of two main reasons: as a consequence of the 3-year LTRO maturity next December and February, and due to the improvement in the workings of the money markets.

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MADRID | By Carlos Díaz Güell | Last week’s greatest news for SMEs were the Targeted Long Term Refinancing Operations (TLTRO), variety of LTROs that got a T standing for target. Banks will be allowed to borrow money at 0.25% interest rate at 4 years max.

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TLTRO will help peripheral banks’ funding, yet will it boost EZ credit?

MADRID | The Corner | No matter whether they lend the funds on to the private sector, TLTRO is likely to be an attractively priced source of funding for banks, especially in the eurozone’s periphery. For those lenders “the costs of TLTRO could be as much as 109-114bp below equivalent wholesale funding for four years, or 68-73bp for two years if they do not increase net lending to the private sector,” an UBS report says. That being said, analysts aren’t sure this is particularly going to boost credit lending. In the graph you can see the dismal evolution of M3 in the 18 single currency area “Shame on the ECB, which has acted behind the curve as always,” The Corner senior economist Miguel Navascués states.


Why ECB’s measures may not fix lending nor inflation

MADRID | The Corner | Despite markets’ euphoric celebration of Mario Draghi’s last words, some remain skeptic about them being the panacea for inflation and the lack of credit in the eurozone. Check the graph above: 5-year swap rates show that inflation expectations have only gone from 1.21/1.24 in May to 1.28/1.24. in June. Nothing to go crazy about, huh?