Todas las claves del BCE

Natixis Global AM - Jueves, 10 de Marzo

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Philippe Waechter, Chief Economist at Natixis Asset ManagementvSo what? What can be done for the next move?  The ECB has taken huge measures to push up the inflation rate but in its forecasts it is just at 1.6% in 2018. It just reflects the one legged economic policy in the euro area. All the job has to be done by the central bank as there is no proactive fiscal policy. This is a necessity to avoid a break but it is not sure that it will create an impulse in economic activity. The ECB seems to be the sole institution which really wants to move and change the picture.  I'm pessimistic as the ECB program will reduce liquidity on a large number of assets. It was partly the case in sovereign debt for certain countries. It will now be the case for the investment grade market. 

Olivier de Larouziere, Head of interest rates at Natixis Asset Management

 

• M.Draghi delivered a stronger-than-expected policy response today. 
• The cut in the deposit rate and in the interest rate on main refinancing operation are not a real surprise and should not have a large effect on bond markets.
• The increase in the monthly pace of asset purchases by EUR 20bn to a total of EUR 80bn is significant. This should be a strong support for Euro sovereign debts, especially for Core countries but also to peripheral debts. Our expectations included technical announcements (minimum rate of purchase for example), which would enlarge the base of buyable sovereign bonds. 
• The priority for the ECB is the transmission of their actions to the real economy. In that sense, they made 2 large announcements: the inclusion of non-financial euro-denominated corporates to the QE purchases and additional TLTRO’s. 
• The announcement of additional TLTRO’s is a big surprise and shows the importance of restoring the credit channel in the Euro Area to the ECB.
• M.Draghi made it clear that the emphasis should now shift from rate instruments (deposit rate,..) to unconventional instruments (TLTRO,..). He also repeated one more time that reforms must be stepped up. In other words, the ECB delivered a lot, again, and governments should take actions !
• Euro area sovereign debts and the currency did not react sharply to the large announcements made by the ECB as M.Draghi insisted on the importance of unconventional instruments rather than rates. Moreover, he mentioned that the lower bound in interest rates may have been reached.

 

 

Raphael Gallardo, Strategist at Natixis Asset Management

 

• Draghi emphasized that the onus of ECB action was shifting from interest rates to ‘unconventional’ measures, and the focus of unconventional measures is clearly on the banking system.
• The fact that there is no ‘tiering system’ of bank reserves reinforces that point. This absence was a surprise for markets, but it was justified explicitly as a forward guidance element, meaning that there was no need for such a shield on bank profits because deposit interest rates would not go lower than -0.4%. So it seems that we are finally at the zero bound.
• ECB VP added a dubious argument that banks would actually benefit from lower rates as they would make revaluation gains on their bond portfolios.
• Conversely, on two occasions, Draghi refused to recognize that the increased maturity (from 3 to 4 years) of the TLTRO II at a fixed rate had an element of forward guidance, which is exactly the contrary from what he suggested when the TLTRO were first introduced.
• We infer from these points that the strategic approach taken by Draghi when presenting the package to the governing council was to limit as much as possible the collateral damage to the yield curves of the ‘core’ countries, in order to deflect criticism of euthanizing savers in Northern countries. This seems to have worked well since he claimed that there was an ‘overwhelming majority’ in favor of the measures.
• This is why the impact on core sovereign bond market is mostly on the short end, with a rise in the EURUSD as a consequence.

 

Yves Maillot, Head of European equities at Natixis Asset Management

 

Having delivered less than expected in December, the ECB returned to its usual form and eased policy by  more than projected. 

 

The comprehensive package exceeds expectations by enough to have a positive confidence impact not just on financial markets but also on business confidence in the Eurozone. In the absence of any new shock such as Brexit, the package should  help to get the Eurozone back to trend growth of annualised rates around 1.6% by mid-2016. 

 

Equity market reaction :

Short term -   Very good during one hour with a specific sharp bounce on the banking names (see the table below with daily move one hour after the decision). One hour after the decision, equity markets in Europe came down back to initial levels, confirming the current high intra-day volatility

 

 

Medium term : Will it last ? One argument against an additional ECB stimulus has been that even more negative rates would hurt banks. With its new LTROs and the cut in the rates at which banks can borrow regularly (main refi rate) or at short notice (marginal lending rate) from the ECB, the ECB is now easing the burden on banks. At the margin, the inclusion of investment grade corporate bonds can help to ease the transmission mechanism of its monetary policy to the real economy. 

 

The real rationale for explaining the coming stocks performances is fundamentally linked with expected growth. Do the market is willing to believe that this new and huge accommodative monetary stance is good to struggle against a weaker outlook for growth and inflation ? What is for sure is the banking sector as a clear target of the decisions. Therefore, it is obvious that banks names show the best performance since the decision has been taken.

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