Julius Baer: Bancos Centrales y Brasil

Redacción - Viernes, 04 de Diciembre

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TOP STORIES: The week that was – central banks underdelivering under the Christmas tree

 

The most awaited communication this week turned out to be a disappointing one. As suspected, it was hard for Mario Draghi & Co. to over-deliver after talking up expectations for months now: rate cut and programme extension or not. So immediately after the European Central Bank update, a complacent year-end week turned into a stormy monster. The euro strengthened and anything risk-related took a beating. Earlier, the Fed chairperson confirmed the year-end hike and showed no reaction to quite disappointing US figures, with US manufacturing indices hitting contraction levels. In the run-up to the OPEC meeting, oil prices went helter-skelter on contradicting statements of the participating members.

 

The central banks did not put anything under the Christmas tree for financial markets to cheer yet. “Not good enough” was the main take, and the euro strengthened and risk assets tanked.

 

Christian Gattiker, Chief Strategist and Head Research, Julius Baer

ECONOMICS: Draghi revolts against market expectations

 

The European Central Bank (ECB) fulfilled only partially high-flying market expectations. In contrast to prior action, ECB President Mario Draghi abstained from surpassing expectations by cutting the deposit rate only to the widely expected level of -0.3% and limiting the extension of the asset-purchasing programme to the runtime only, leaving the monthly volume unchanged. The euro recovered strongly to more than 1.08 EUR/USD and eurozone bond yields rose. Given the positive eurozone economic data in the past weeks, we assess the ECB measures as fully appropriate. The moderate cut in the deposit rate leaves the door open to do more in the future. The ECB might use this room short-term in case the most recent euro strengthening starts threatening the eurozone recovery. Hence we stick to our 3 months EUR/USD 1.06 forecast.

 

Additional monetary stimulus measures fell short of expectations but are appropriate given the economic backdrop of the eurozone. The room to do more should erode some of the euro’s strength over the next 3 months.

 

David Kohl, Chief Currency Strategist and Head Economist Germany, Julius Baer

 

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STRATEGY: ECB decision brings short term volatility

 

Yesterday’s announcement of the ECB regarding further stimulus measures has caused quite some volatility as positive expectations were not met and traders closed positions immediately. However, from a medium-term perspective the prolongation of the QE programme should be supportive for eurozone equities as the gap between the Fed and ECB balanace sheets will further narrow going forward. We consequently stick to our preference for eurozone equities and recommend buying peripheral exposure given the elevated domestic sales exposure.

 

From a fundamental perspective short-term disappoint should turn into medi-um-term outperformance.

 

Christoph Riniker, Head Equity Strategy Research, Julius Baer

 

 

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STRATEGY: Brazil –a relieve rally or trend reversal?

 

We believe that the recent equity market spike was just a short-term relief rally and no trend reversal. First, although the impeachment process is now a reality, it is a complicated path. Second, the impeachment process could drag on for months, wasting valuable time for turning the country around. Third, probabilities are high that in the meantime the fiscal stabilisation plan will be put on ice, bringing back market volatility. The question is how the government can possibly avoid another credit rating down-grade with the open issues mentioned above, the budget deficit at -9%, the primary budget deficit at -0.7% and the current account deficit at -3.9%. We believe that investors’ hopes will fade again and with it stock prices.

 

There is no trend reversal in Brazilian equities. The impeachment process will drag on for months and investors’ hopes will fade again.Remain underweight the MSCI Brazil.

 

Heinz Ruettimann, Strategy Research Analyst Emerging Markets, Julius Baer

 

 

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