Julius Baer: después del BCE y antes de las elecciones en Grecia

Redacción - Viernes, 23 de Enero

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STRATEGY: The week that was - the race to the bottom Both demographers and permanent bears have been calling for the “race to the bottom”, seeing interest rates in many mature economies hit the zero mark eventually. In the past few days and weeks we came to realise that “there is no bottom, interest rates rush through the zero line”. After the European and Swiss market rates turned negative, Denmark joined the club by introducing negative interest rates to defend the currency peg. Before that, Canada and Norway – both commodity-driven economies – saw rate cuts against falling energy prices.

 

Both Switzerland and Denmark entered full negative rate territory of up to ten year duration. After the European Central Bank’s announcement, investors ask themselves: “Will there ever be reflation?”

 

Christian Gattiker, Chief Strategist and Head Research

 

 

 

ECONOMICS: ECB delivers and adds a little bid on top

ECB president Mario Draghi has successfully communicated the central bank’s commitment to do more on the on the monetary policy front, despite the constraints that interest rates are already at zero. The ECB announced a sufficient large asset-purchasing programme (QE) which has a kind of open ended character by announcing monthly purchases of EUR60bn of investment-grade bonds until inflation becomes more in line with the ECB target of close to 2%. Rumours had emerged that the ECB would announced EUR50bn shortly ahead of the meeting had been surpassed and high flying financial market expectations had been fulfilled. An important channel how QE should work – according to the ECB president - is the so-called portfolio rebalancing channel meaning that the ECB purchasing of bonds make these assets more expensive, forcing investors into riskier asset like equities or banks into making more loans. This is an invitation to buy equities and to cheer about a wave of cheap lending. EUR/USD fell below 1.14, reacting to the fact that the ECB was able to avoid a disappointment of expectations. The EUR has at this level fully discounted the ECB loosening, and are we maintaining our view that it will trade higher in three months’ time from now. As we do not expect a V-shaped rebound, we adjust the target to 1.20 EUR/USD down from our previous forecast of 1.23.

 

The ECB action will help asset prices much more than the economy, while the exchange rate has fully discounted the coming liquidity wave.

 

David Kohl, Global Head Fx Research, Julius Baer

 

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FIXED INCOME: European government bond: Waiting for the Greek elections

The European Central Bank fulfilled market expectations with an unlimited purchase programme. While ECB President Mario Draghi marked September 2016 as the primary end-point for his quantitative easing programme, he has learned his lesson from the experience of the Federal Reserve and left the door open for future purchases. In fact, US Treasury yields always dropped ahead of a QE programme announcement and rebounded during the programme. Only in the third programme, QE III of September 2012, the Fed left the date of the exit open, which helped to keep yields down for good. Only when the Fed began to talk about the need to terminate the programme in April 2013 did yields rebound again. So it is pretty important for the bond market that Draghi mentioned this option to continue the purchases until inflation is back to the ECB’s target of “below but close to 2%”. The key question is, however, whether he targets of the actual inflation rate, which stands at -0.2%, the core inflation rate, which is 0.7% or the 5-year forward 5-year inflation rate, which he mentioned last year in his famous speech at the ECB conference in Sintra, Portugal. The latter currently stands at 1.75%, up from 1.5% a week ago. The market might need some clarification from the ECB, in our view, to keep the current yield levels. That said, the short-term focus is on Greece anyway. We all know that the eurozone-critical Syriza party has defended a decent lead in the polls for this Sunday’s elections. We doubt that the party really wants to leave the European Monetary Union. Remaining in the eurozone with the new term for the troika loans seems to be the smartest move for any new government. Draghi has left room for such a renegotiation of terms and stated to buy Greek government debt only for mid-2015.

 

Bond yields have fallen to level that are only justified when investors believe that the ECB will have to buy ‘forever’. There is more money to be made with assets other than EUR bonds that benefit from the liquidity glut and have more upside, such as real estate investment.

 

Markus Allenspach, Head Fixed Income Research, Julius Baer

 

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