The ECB kept rates unchanged and confirmed its forward guidance – key interest rates will remain at the current level or lower for an extended period. The ECB is ready to consider all available conditions, but is not ready to act at this point.
Will the ECB cut the deposit rate? Would a negative deposit rate change the growth outlook? Will a deposit rate cut weaken the EUR? Will EONIA turn negative? What is the lower bound for the deposit rate? Does a negative deposit rate at the ECB force banks to lend?
We expect very dovish signals from the ECB at this week’s monetary policy meeting, but no change in key rates. Risks are clearly skewed towards another rate cut and the door is likely to be left wide open to all non-conventional measures including a negative deposit rate, LTROs or possibly even QE. We could easily see the ECB announcing new liquidity measures to ease concerns around the turn of the year.
The looming asset quality review by the ECB, year-end effects and the search for liquidity, an economy losing momentum and the big narrowing in spreads seen lately all favour taking profit before the end of the year. Intra-Euro-zone spreads are set to widen in the weeks to come, while banks will feel pressure vs other sectors.
We have updated our Euro-area inflation profile. Inflation reached a year-low in October, but March 2014 could be lower. We expect inflation below 1% until mid-2014. The strong EUR matters. Core CPI was rather stable… until October. Implicit market expectations are now much too low. Deflation risks are small but rising. More ECB action not unlikely
Bond yields dropped yesterday and curves flattened We see upside risk to the Euro-zone GDP figures today which could put pressure on bonds today German SPD holds part convention today BoE more upbeat on the economic outlook Euro-zone GDP, ECB’s …
Selvom ECB sænkede renten med 0,25%-point i dag, valgte Nationalbanken ikke at følge trop. Det skyldes situationen med et stort indenlandsk indlånsoverskud, som betyder, at det er forskellen mellem indlånsrenterne i nationalbankerne, som er afgørende for kronekursen. Og da ECB …
he ECB cut its refi rate by 25 bp today against our expectations that December was the most likely timing. Markets were taken by surprise. The ECB is probably done with easing in this cycle.
ECB cuts the refi rate by 25 bp to 0.25%. (depo rate unchanged; marginal lending rate down 25bp)
ECB fires last interest rate bullet Danish central bank only to partly track ECB – as in May Still plenty of ammunition to defend the krone Over the past three months Euro-area inflation has ticked significantly lower (from 1.6% in …
We found two interesting points in the forecasts the European Commission published today: 1) The times where forecasters increase their growth expectations for the Euro area seem to be over. 2) Given a still significant output gap and limited room for manoeuvre for the ECB, the debate about how restrictive fiscal policy should be could soon flare up again.
ECB affyrer det sidste skud i rentebøssen Nationalbanken følger kun delvist med ned – ligesom i maj Fortsat rigeligt med ammunition til at forsvare kronen Over de seneste tre måneder er inflationen i Euroområdet faldet betydeligt (fra 1,6 pct. i …
We now expect a 25 bp refi rate cut in December. We expect a clearly dovish tone at this week’s meeting. Liquidity will remain ample
Inflation in the Euro area moves further away from the ECB’s medium-term target of “close to but below 2%”. In October, the inflation rate dropped to 0.7%, according to Eurostat’s flash estimate. (We had flagged the risk of a below …
The main conclusion from the ECB Bank Lending Survey is that credit conditions stabilised during Q3 for companies and households. Thus, banks are no longer tightening credit conditions but have yet to start normalisation. Demand for loans remains weak but less so, and banks actually expect increased loan demand in the quarter ahead.
Since the summer of last year, the euro has gained some 10% in value against the USD, and around 8% in nominal and also real trade weighted terms. This is clearly reflected in foreign trade data: The growth of Euro-area’s …
In the short term, we expect the USD to gain ground. The market expectations of tapering have been postponed to March – and even later – which can be changed by a few better macro figures from the US. (Our economists still call for a January taper.) The weaker payrolls in September may still be revised as they used to in previous years. Various short-term indicator models suggest that the EURUSD has overshot.
Housing markets often reflect and impact on the broader state of the economy, especially in countries with a high home ownership ratio. Declining home prices mean declining housing wealth which can (and often does) mean lower consumer confidence and stressed …
It could easily take until December or even January until the new German coalition government will be in place (probably a Grand Coalition of Merkel’s CDU/CSU and the SPD). In this period of stand-by, the government can react to events, but expect no initiatives.
ECB valgte som ventet at holde renten uændret på rådsmødet i dag i Paris. Centralbankchef Mario Draghi kom ikke med meget nyt om den fremtidige pengepolitik, men gentog udsagnet fra de seneste møder om, at økonomien i euroområdet langsomt bevæger …
The ECB kept its key rates unchanged at today’s meeting and gave no new signals regarding future policy actions. The ECB intends to keep its policy rates at the current level or lower for an extended period. On the much …
The case for a new LTRO will be the focal point of Wednesday's ECB meeting. Thus, this month's ECB preview has been extended with a deeper look at the likelihood of another LTRO, the pros and cons and the potential market impact.
The ECB kept its key policy rates unchanged at today’s meeting as widely expected. ECB President Draghi’s introductory statement by and large confirmed our view that the ECB has a clear easing bias despite recent better-than-expected key figures.
No new actions, but dovish words. Rising market rates are a key concern. We look for comments on the downside risks to inflation. New projections likely to show minor changes. Market view
While liquidity draining has slowed in the Euro zone, fixings and short rates have been more volatile since the repayments of the LTROs started. As such, even if EONIA will converge more slowly towards the refi rate than most analysts initially expected, it could be important to take a closer look at the liquidity situation and its drivers in the Euro zone.
Central banks have become very keen to give concrete forward guidance to markets lately. The Fed has of course been doing it for several years already, but the ECB and the Bank of England started doing it only recently. The …
Higher market rates are here to stay Further rate hikes on the cards in 2014 Stable DKK exchange rate will keep the central bank out of the market Improved indicators in the US and Europe send market rates higher During …
Here is a short interpretation of European GDP data for Q2 that were published today. There are several pieces of good news: 1) Recession in a technical sense ended, as euro area GDP increased by probably 0.3% q/q after six …
A guide to the German election Many observers of the euro crisis consider the German general election taking place on 22 September the most important political event in Europe this year and a possible game changer. By its sheer …
Valutareserven steg i juli med 1,3 mia. kroner og er nu på 491,9 mia. kroner. Det er noget fra rekorden på 514 mia. kroner, som blev opnået for præcis ét år siden, men fortsat på et højt niveau. Ændringen i …
No changes in policy rates Governing Council unanimous in expecting “… interest rates to remain at present or lower levels for an extended period of time” – without more clarification on forward guidance ECB considers markets’ current rate hike expectations …
ECB valgte som ventet at holde renten uændret på rådsmødet i dag. Der var set frem til mødet med spænding, ikke mindst fordi der var forhåbning om, at centralbankchef Mario Draghi ville åbne lidt mere op for, hvad han egentlig …
Our take on the ECB meeting on 1 August: No new measures Rate cut risk remains Forward guidance as the modern form of “open mouth policy” After a hectic ECB meeting in July (commented by Anders Svendsen here: Soft forward …
Today’s Euro-zone PMI data and the ECB lending survey provided fresh evidence the area is making good progress in finally defeating recession. The data is bad news for bonds in the short term, but any move higher in rates should be seen as a buying opportunity rather than the start of a more permanent uptrend in yields.
The Fed is finally starting to get its message through: tapering does not mean imminent policy tightening. Markets are not that allergic to all tapering talk anymore, while economic data will receive added attention going forward. In the Euro zone, political risks are on the increase again.
Misunderstood Fed rhetoric still felt in the market Forward interest rate guidance has come to Europe The Danish central bank is doing relatively well Danish rates will move slightly lower before resuming uptrend Since the beginning of the year Danish …
In the Euro zone the 3 year LTRO repayments have continued in steady pace and excess liquidity is expected to reach EUR 100-200bn in the end of this year. These are levels where EONIA historically has moved towards the refi rate, and in this publication we look deeper into the topic that could become an important theme during the autumn.
Forward guidance is the new black among central bankers. Political crisis in Portugal. Today, there is only one thing on the agenda: US payrolls
Forward guidance seems to be the new black among central bankers. The soft guidance from the ECB today has a significant degree of discretion to it, which means that Draghi can use it to guide market expectations and the risk sentiment. However, it is not actually a promise and should probably not be seen as more than an indication of the ECBs clear easing bias.
The ECB left key interest rates unchanged as widely expected. Draghi struck a very dovish tone saying that rates will remain at present or lower levels for an extended period. Moreover, the governing council had an extensive discussion about cutting the interest rates; does not see the 0.50% as the lower bound; and has an open mind on all interest rates including the deposit rate. That is probably as dovish as the ECB could possibly be without actual actions.
Today’s menu is ECB, BoE and Spanish auction. Next step in Portugal is keeping the government together. Strong numbers yesterday. Riksbank stays on hold as expected. ECB preview: Monetary exit remains very distant. BoE preview: The King has left the building
Financial markets hit by hawkish statements from Fed’s Ben Bernanke The pick-up in interest rates since early May is overdone We do not see any permanent rate increases until in the autumn Danish central bank sidelined – the DKK still …
We expect rates to be kept unchanged, which is in line with the general perception. This week’s meeting will be about the implications of the sell-off in fixed-income markets. Draghi is likely to repeat that an ECB exit is very distant; that rates will rise at some point; while excessive rate rises in the periphery could be dealt with by activating the OMT.
Høgeagtige kommentarer fra Bernanke rammer de finansielle markeder De betydelige rentestigninger siden starten af maj er overgjort Først hen i efteråret venter vi mere permanente rentestigninger Nationalbanken i venteposition – kronen fortsat på fornuftigt niveau Opbrudsstemning på de finansielle markeder …
As expected, the European summit brought some progress on the way towards a European banking union. When banks fail, a chaotic chain of events as recently seen in Cyprus will be less likely in the future. Shareholders and creditors can …
Here is a overview of our financial forecasts. We have made minor changes to the US rates and the commodities forecasts, and we summarize last week's FX forecast changes.
Inflation is quickly becoming a topic again – not because of concerns the huge stimulus measures pursued by central banks would be creating inflation, but because the falling inflation rates are raising questions of whether central banks are doing enough. Bonds should thrive in an environment of falling inflation.
Shaping the banking union will be high on the agenda of the EU summit on 27/28 June. Our take is that the summit will move the banking union ahead in the typical European way – i.e. slowly, with a less than perfect result dictated by the need to agree on a compromise.
The recent sell-off in interest rates is looking increasingly overblown, especially in Europe. We look for a notable move back lower in rates, with the Fed meeting next week being a potential trigger. Long positions especially in the short end of the EUR curve thus look quite attractive.
We take a deeper look at deflation risks in the Euro area will be a major theme during the second half of this year. Deflation risks seems small but rising. More evidence of rising deflation risks we believe we will see a much more aggressive ECB.
I still consider a “Yes, but …” decision by the court as likely, giving the ECB the benefit of the doubt. If the court decides to forward the case to the European Court of Justice, financial markets can probably relax, given the pro-integration reputation of the judges in Luxemburg. Most commentators now expect a decision to come only after the German election on 22 September. A negative decision by the court stopping or materially constraining the ECB remains a low probability/very high impact risk scenario. So don’t take the judges’ pragmatism for granted.
USD may attempt to recover vs majors after last week's sell-off, but only temporarily. Asian and Chinese data is still a worry for Emerging Markets/commodity FX, even with central bank support now...
There was not a lot of news in ECB’s monetary policy meeting today. The ECB is ready to act again, if key figures disappoint, but still expect a gradual recovery during the second half of the year. There was no sense of urgency about more action at today's press meeting.
ECB valgte som ventet at holde renten uændret på rådsmødet i dag, som var ventet med spænding, også fordi der blev præsenteret en ny prognose for udviklingen i eurozonen. ECB nedjusterede sine forventninger til væksten i eurozonen marginalt fra -0,5% til …
The recent considerable rise in rates looks to have taken place too fast, as concerns that the Fed would be close to scaling down stimulus measures have been driving markets. In Europe, not that much has changed and taking advantage of the higher carry available looks much more attractive again.
The Emerging Market and commodity currencies (“carry” currencies) have depreciated against USD and EUR in May, in particular AUD and ZAR have been hit. We expect stabilisation in China’s data soon, and the Fed is not to end QE in …
After a pretty hectic ECB meeting a month ago, we expect a somewhat more calm sentiment around this week’s event, but rates may still fall. We expect no change in rates and nothing new on the ABS programme this time around. Draghi is likely to strike a dovish tone to support sentiment and confidence, probably stressing recent key figure improvements and keeping the option of negative rates on the table.
The Germans take pride in their Bundesbank and its history of guaranteeing price stability, a very sensitive topic in Germany. Lately, however, the monetary policy choices of the ECB have caused quite a lot of irritation among many Germans. Such irritation will only grow going forward.
We revise down our GDP forecasts from -0.4% to -0.8% for 2013 and from 1.4% to 1% for next year. We don’t surrender to those forecasting no growth at all also for next year. We maintain our view that the balance of risk is for ECB to keep rates unchanged.
Going for carry continues to be the name of the game, while the consideration of the credit risks involved seems once again to be a secondary concern. The risks of a bond bubble are no doubt in the air, but this trend has not run its course.
The ECB responds to the persistent economic slowdown The Danish central bank “only” trims its lending rate slightly Risks are skewed towards yet another rate cut … but we expect the bank to keep rates steady this year and adapt …
ECB har taget konsekvensen af den fortsatte økonomiske afmatning Nationalbanken ”nøjedes” med en lille nedsættelse af udlånsrenten Risikoen peger mod endnu en rentenedsættelse…men vi venter, at Nationalbanken holder renten i ro i år, og tilpasser sig til ECB i løbet …
We now expect the ECB to keep rates unchanged at the current level until the beginning of 2015. Risks are clearly skewed towards another rate cut in the near term. Speculation in a deposit rate cut could take market rates to new lows in the near term and we have revised the market rates forecasts lower on all horizons. Lower EUR rates have implications for the EUR/USD forecast in the longer run, and we have decided to lower the end-2014.
The ECB cut its refi rate by 25 bp to 0.5% as most expected. With the interest rate cuts the ECB do seem to be delivering something when not being able to deliver what it actually wants to, ie support to SMEs. Still, Draghi also seems more open than previously to further easing steps even after today’s decision to cut interest rates, which will support risk appetite in financial markets.
Som en anden Baron Von Münchhausen bliver Europa nødt til at trække sig selv op af sumpen ved håret. Det var indledningssvadaen fra den tyske præsident for den Europæiske Investeringsbank, Werner Hoyer, på en international finanskonference, som jeg deltog på …
ECB valgte i dag at sænke renten med 25bp. Det er den forværrede økonomiske situation i euroområdet, som får Draghi &Co. til endelig at kaste håndklædet i ringen og gennem rentenedsættelsen at forsøge at skabe lidt mere liv i den …
The Euro-area flash estimate for inflation in April fell to 1.2%! This follows a reading of 1.7% in March and we have looked a bit deeper into a few questions: Temporary or permanent? Good news or bad? ECB reaction or not?
The European Central Bank (ECB) faces mounting pressure to ease monetary policy in the Euro area. In our view, this leaves the ECB with four options: Keep the powder dry and hope for the best – unchanged rates (60%) The …
Den Europæiske Centralbank er under et tiltagende pres for at lempe pengepolitikken i Euroområdet. Efter vores vurdering efterlader det ECB med fire muligheder: Hold krudtet tørt og håb på bedre tider – uændret rente (60 pct.) Det sikre valg – …
Markets have once again started pricing in some risk of a rate cut and a majority of analysts now expect a refi rate cut from the ECB already at the meeting this week. We stick to our call and find it most likely that the ECB will keep rates on hold and instead come up with new measures to support bank lending to Small and Medium-sized Enterprises (SMEs).
If you torture the data long enough, it will confess. One can find hope in today’s Euro-zone credit numbers for March, though if you are pessimistic, the data offers a lot for you as well.
The concept of negative nominal interest rates has usually been considered something possible only as a short-term market aberration. Not anymore. Could negative interest rates really save us?
We believe the ECB sees additional interest rate cuts beyond the current level as more or less ineffective. That is the reason, in our view, that interest rates were not cut already in December. However, key figures have surprised to the downside and we believe the ECB will have to act if the bank believes the economic outlook has weakened further or if it is unable to come up with an SME “support package” even if it believes the effect will be limited. An unchanged PMI reading today does not make a big difference in our opinion.
Big market moves have caught a lot of attention in the past few days. Where is the world going?
We have made a number of adjustments to our financial forecasts including US rates, EUR/USD, GBP, CHF, JPY and base metals. The big story is unchanged!
That the inflation rate in Greece fell below zero in March for the first time in 45 years gets quite a lot of media attention. The deflation ghost is out of the bottle again – is it really? Or has it …
Draghi turned more dovish at today’s ECB press conference. Another rate cut has become more likely, but still depend on incoming data in the near term.
We expect no changes in key policy rates and no new non-standard measures from the ECB at Thursday’s meeting. Lots of questions about Cyprus, but Draghi will probably not give any answers. Market reaction could be slightly negative again.
The EU appears to have fast-tracked its plans for bank resolution in earnest, at least based on the comments from the Eurogroup President Dijsselbloem. Such plans are another blow for the funding outlook of banks, and risk escalating the euro crisis again.
A deal on Cyprus was finally reached this morning. Unlike the earlier agreement that basically sent the message that all depositors in troubled banks should immediately withdraw their money, the terms of this agreement actually send a more constructive message. Still, days of wrangling and bad suggestions earlier have hurt the credibility of Euro-zone decision-makers further.
The Cypriot parliament yesterday rejected the proposed bailout including the controversial levy on bank deposits, putting the future path of Cyprus very much in question again. However, as the alternative for the bailout for the country looks much worse than the terms of the aid package, Cyprus will most likely have to accept the terms in the end.
Here are the usual financial forecast slides with our new financial forecasts published this this morning in Economic Outlook. We have changed our forecast for the Fed, the BoE, the SNB, Riksbanken, Euro rates, USD rates, EUR/USD, JPY, GBP, SEK, NOK, oil and the base metals.
The ECB decided to keep interest rates unchanged at today’s meeting. Draghi’s statement was more or less unchanged in its wording compared with the statement a month ago. Draghi remains dovish but more weakness is needed to make the ECB cut rates.
Italy update: Uncertainty here to stay One week after the elections in Italy ended without clear majorities, we give an update from a markets, a political and an economic perspective as well as on our ideas on how it might …
We expect no changes in key policy rates and no new non-standard measures from the ECB at Thursday’s meeting. The new staff projections for growth and inflation will be roughly unchanged. There will be no help for Italy from the ECB.
The ECB announced today 356 banks would return a total of EUR 61bn of the 3-year money they took from the central bank in the second 3-year LTRO early last year. The numbers illustrate that a considerably amount of excess liquidity will remain in the system for a long time, keeping overnight rates close to current levels. The banking system in general will heal only slowly.
The other bigger one-time repayment of ECB 3-year loans will take place next week, when the second 3-year LTRO will have its first repayment date. The repayment interest is likely to come below the EUR 137bn seen in the first operation. That said, as we have seen a notable correction lower in short interest rates since the first repayments, risks are tilted towards higher rates and a steeper money market curve ahead of Friday’s data.
Som ventet holdt Draghi & Co. renterne uændret på dagens møde i ECB. Også tonen var nogenlunde den samme som i januar. ECB ser således fortsat ret dystert på den økonomiske udvikling og understreger, at der fortsat er risiko for, …
The ECB left key policy rates unchanged as widely expected. Draghi struck an optimistic tone, but was maybe slightly more concerned about the LTRO repayments and EUR strength than most had expected.
Political risk has been on the rise again in Spain and Italy lately, serving as the latest reminder that the risks inherent in these countries have by no means gone away. As the Spanish corruption scandal is far from resolved, while Italy is headed for uncertain parliamentary elections, market tremors will likely continue in the near future.
I expect no change in rates, no new non-standard measures and no change in bias. Is the ECB concerned about large-scale LTRO repayments draining liquidity? Is the ECB concerned about the rise in short rates and strengthening of the EUR?
Expectations of another ECB rate cut were taken out of the markets after the January ECB meeting when Draghi was perceived to be too upbeat on growth prospects to consider cutting interest rates again. Ironically, Draghi’s tone and the surprisingly large LTRO repayments may force the ECB to cut interest rates again!
In this analysis we present an updated forecast on Danish yields. In here we find that: Mounting pressures on the krone prompted the Danish central bank to sanction an independent rate hike, marking the beginning of the end of an …
The ECB announced that 278 banks will repay a total of EUR 137bn of the 3-year loans taken from the central bank. The amount paid was higher than many had expected, and has put upward pressure on rates. However, one should not draw the conclusion that monetary policy was about to see an abrupt tightening and that rates would be heading higher for good.
Portugal followed in the footsteps of Spain’s hugely successful bond launch yesterday, making a comeback to bond markets for the first time since its bailout from other Euro-zone countries and the IMF. The Portuguese bond sale was just the latest reminder that confidence towards the Euro zone is returning.
In our view, the key questions are: 1.Who will repay and how much? 2.Will short rates move higher if a lot of LTRO loans are repaid? 3.Is it a good or a bad sign if a lot of LTRO loans are repaid? 4.Is there a case for an ECB response? 5.What will happen to German bonds?
On Friday, January 25, the ECB will announce the first amount to be repaid of the three year LTROs. We estimate EUR 200bn to be paid back during 2013, with limited market impact in the short term.
When the ECB announced its Outright Monetary Transactions (OMT) programme last autumn, Spain was expected to take advantage of the programme rather quickly. The activation of the OMTs would have required an aid programme for Spain, which the country was reluctant to apply for. Could Ireland become the first direct beneficiary of the programme?
In the attached analysis we present an updated forecast on Danish yields. In here we find that: ECB on the sideline amid rising risk appetite in financial markets and a stabilisation of the economic growth outlook. We expect the Danish …
Banks will have the first chance to repay the 3-year money borrowed from the ECB on 30 January. Early repayments are likely to give rise to pricing of higher short rates and cause some jitters of tightening policy. Despite the repayments, plenty of excess liquidity will remain, keeping short rates very close to current levels.
Vi har opdateret vores prognose på de danske renter. I den nye prognose konkluderer vi, at: ECB på sidelinjen efter stigende risikoappetit på de finansielle markeder og en stabilisering af de økonomiske vækstudsigter. Vi forventer, at Nationalbanken er klar med en …
We have only made minor changes to the financial forecasts this time: We have lifted our mid-year target for the EUR/USD to 1.25, made minor changes to the GBP forecast, lowered our 3M EUR/SEK forecast to 8.60 and we have postponed the first hike from Norges Bank to March 2014 and only expect two hikes in 2014.
The ECB decided to keep interest rates on hold today as most had expected. At the press conference, ECB President Draghi more or less repeated the statement from December, which in our view means that the door is wide open for more ECB easing, but it will require more economic weakness.
Den Europæiske Centralbank har i dag annonceret, at de fastholder alle deres ledende renter uændret. Dermed er presset også taget af Nationalbanken, der med meget stor sandsynlighed vil fastholde de danske renter uændret senere i eftermiddag. På det efterfølgende pressemøde fastholder …
Spain sold a total of EUR 5.8bn of bonds today, which was more than the indicated EUR 4 to 5bn target range for the auctions. This represents just shy of 5% of the estimated total long-term borrowing requirement for the year. Today’s news was certainly positive for Spain, but one should not get too carried away. Spanish issuance needs going forward are daunting.
The next easing step from the ECB could be the introduction of a temporary price level target path.
I do not expect any action from the ECB at this Thursday’s meeting. There is still a risk that the refi rate will be cut, though, and, if not, the door will be kept wide open for future rate cuts.
What do Portugal, Ireland and Italy have in common? Their government bond markets have all produced a return of more than 20% in 2012. These numbers handily beat the around 4% return from German bonds. In fact, among larger Euro-zone countries, Germany has been the worst performer in 2012.
2012 is drawing to a close. Despite worries of the contrary, both Spain and Italy have been able to satisfy their borrowing needs via the bond market – albeit with quite a lot of help from the ECB. Still, the issuance picture suggests especially Spain will face notable challenges ahead.
Italian bonds have seen almost stellar performance lately, with the year-to-date return from Italian bonds in general standing at close to 20%. Profit-taking and a correction higher in yields look likely at some point. Such a move may have started yesterday, as the future of the government was put in doubt.
The overall impression of the press meeting is that that Draghi has turned slightly more dovish, but not enough to make a clear signal of an upcoming rate cut. However, the ECB has enough ammunition to cut interest rates in Q1, if the economy weakens more than currently expected.
While the ECB has continued to introduce new measures to make its monetary policy more accommodative, in some respects policy has actually become tighter, and may continue to do so going forward. More specifically, the excess liquidity in the Euro-zone banking system has fallen quite clearly already from its highs.
The ECB kept its key interest rates unchanged as widely expected. At the press conference, Mr Draghi more or less repeated his statement from the October meeting.
The outlook has not changed and hence new easing measures are not justified at this point. If anything, the ECB could be considering new measures to improve monetary transmission in the periphery. We view tomorrow's meeting as market neutral.
Elections in US and in China will dominate headlines. Central bank meetings at the ECB and the Bank of England. First independent Danish rate hike in almost four years, weak Swedish production numbers and low Norwegian core inflation.
The results from the ECB’s latest bank lending survey (Q3) only add to worries that credit growth is not going to support an economic recovery any time soon. The results thus add to downside risks for the economy. The dark clouds hanging over the Euro-zone economy are not going disappear any time soon.
The effect of the ECB’s bond purchases should be felt also outside the bond markets directly targeted by the interventions. The purchases should put in general downward pressure on the maturity segment targeted, but cause upward pressure in longer maturities (on average).
Pressure on Spain is mounting again, with S&P downgrading the country to the lowest investment grade rating, Moody’s likely to go a step further soon, while calls for independence in Catalonia are not exactly calming. Higher yields will likely be needed to persuade Spain to make an official aid request.
Risk perception kept low on bold policy actions – look for tail risk hedges.
The ECB seems rather comfortable with the current situation, and clearly sees it is up to the governments to take the next steps. The more important next step will be an aid request from Spain, but it might still take at least several weeks for such a request to surface.
Both the ECB and the Bank of England will announce their latest monetary policy decisions tomorrow, but neither is expected to do much new at this stage. Draghi will probably dodge the toughest questions on the ECB’s announced bond purchase programme, while BoE is more likely to take the decision on expanding its bond purchases next month.
Nordea Economic and Market Outlook: Our latest take on Nordic and Global financial markets and economies.
There are several options to give Greece more time to reform its economy but trickier still is convincing the IMF the debt remains sustainable. In any case, it looks all but certain that Greek debt will need to be restructured again - sooner or later - meaning losses for the public-sector creditors.
Focus on Euro-zone problems continue. We don't expect economic key figures to surprise on the upside. Risk on/risk off to ebb and flow and we're keeping our forecasts mostly unchanged.
More details from the ECB on OMT, September employment report and ISM manufacturing survey from the US, minutes of the FOMC meeting, UK PMI figures and the Bank of England rate decision.
Despite expectations of limited price pressures, Euro-zone inflation surprisingly accelerated from 2.6% y/y to 2.7% vs. the Bloomberg consensus estimate of 2.4%. Even though inflation is not really the main thing on the ECB’s radar at the moment, especially the more hawkish members of the Governing Council will pay attention to these numbers.
After a week of consolidation, the outcome of the confidence game is in Spain's hands...
Confidence in the Euro zone remains depressed and implies weak economic performance will continue. That said, it is positive we saw more signs that confidence would have at least stabilized. Germany and France saw very divergent development.
In this issue we take a stance on QE, which we think will end up being futile.
Within the next three months the Danish central bank will make its first independent rate hike since 2008.
Within the next three months the Danish central bank will make its first independent rate hike since 2008.
Vi har opdateret vores danske renteprognose. Heri konkluderer vi at Nationalbanken inden for de kommende tre måneder gennemføre den første selvstændige renteforhøjelse siden 2008. Samtidig venter vi højere markedsrenter, stigende spænd mellem danske og tyske statsrenter samt en udvidelse af DKK-EUR swapspænd.
The Fed’s new bond purchases and changes to the communication strategy illustrate that the Fed is determined to shift the US economy into higher gear, though we need action from Congress as well.
(Updated 11:22 CET) The results of the Wild Wednesday in the Euro area are generally positive for the Euro area and for the markets, at least so far (Dutch election pending). The German Constitutional Court allowed German ratification of the ESM and the European Commission’s proposal for a Banking Union were by and large as widely expected.
The European Commission published its proposal for a Banking Union today. The big lines of the proposal are in line with general expectations. The political struggle is just beginning…
QE3 from Fed and Wild Wednesday in the Euro area next week
The likely amounts involved in the ECB’s OMT programme are unlikely to be huge, at least initially. However, it usually takes some time to win confidence back, meaning also the ECB will have to put some money behind its words.
The ECB keeps key interest rates on hold. ECB President Draghi announced some details of the ECB's new intervention mechanism called "Outright Monetary Transactions" (OMT) and easier collateral requirements.
Euro's fate in ECB's hands today.
Here is a presentation of our new Economic Outlook for the Euro area – Restore Confidence to End Recession.
The ECB is likely to disappoint financial markets mildly at this week’s meeting. Still, looking ahead, I believe ECB interventions will come and will be decisive.
Will the ECB deliver? Hopes are high but expect somewhat of a disappointment as they won't reveal all.
During the coming week's there are a number of major event risks on the Euro-area calendar. Here is a short presentation with my take on what to expect
The EFSF barely received sufficient orders for its new EUR 3bn 10-year bond issue. This suggests, at least, the EFSF will have to pay a higher premium for future bond issues, which will also turn into higher funding costs for countries receiving financial aid.
The ECB President Mario Draghi is one of four key Euro area leaders that have been given the task to come up with a vision for the future of the Euro area. A short article on the subject has just been released.
Here is a presentation containing charts and comments supporting our general view on Spain
New policy signals are eagerly awaited from major central banks at the moment, not least from the US Fed and the ECB.
We are lifting our short-term interest rate forecasts but keeping the 2013 forecasts. We’re in the midst of updating our macro forecasts and will introduce 2014 financial forecasts in a fortnight.
Next week’s macroeconomic releases and events are, in our view, generally likely to give further support to risk appetite in financial markets.
Markets are waiting for cues to take new direction - cues about possible decisive ECB intervention and/or more evidence that the big economies are starting to recover modestly.
It is not for nothing that Mario Draghi, President of the European Central Bank (ECB), is sometimes referred to as “Super Mario”. Just like the super hero in the computer games, he faces almost impossible tasks.
Spændingen var stor inden torsdagens pressemøde i ECB. Ville Mario Draghi afsløre detaljerne for den ultimative redningsplan for eurozonen – eller var det tomme ord.
The dust has not yet settled after yesterday’s ECB press conference, where President Draghi dealt a blow to hopes that the central bank will quickly make huge bond purchases to address the Euro-area debt crisis.
Markedet reagerte negativt på gårsdagens budskap fra Den europeiske sentralbanken. De negative markedsreaksjonene må sees i lys av at Draghi selv hadde skapt høye forventninger og at markedsaktørene gjentatte ganger er blitt skuffet over uferdige annonserte redningstiltak.
(Last update 16:12) The ECB is ready to buy bonds directly in the markets. The details remain unclear. Moreover the ECB is likely to cut interest rates in September.
Some actions are possible at Thursday's ECB meeting, but a high degree of political uncertainty makes us believe that verbal support is what we will get. Intervention hints are possible.
ECB’s lending survey and the Ifo reading point to weaker growth momentum in the Euro area and support the view that the ECB will cut interest rates again.
The flash Euro-area PMI stabilised in July. The numbers are bad but the situation did not worsen in July compared with June, which means that the ECB is likely to keep interest rates on hold at the August meeting.
In the past weeks, bonds perceived to be the safest have performed at the same time as equities have. Despite the small pick-up on risk appetite, the safest bonds are likely to perform well also going forward, as the huge liquidity coupled with uncertainty about the future of the Euro-zone will continue to provide support.
Belgium joined the growing group of countries able to sell T-bills at negative rates today, another illustration of what the huge liquidity coupled with a zero per cent ECB deposit facility rate does.
Belgium joined the growing group of countries able to sell T-bills at negative rates today, another illustration of what the huge liquidity coupled with a zero per cent ECB deposit facility rate does.
The usage of the deposit facility does not tell us anything about lending to the real economy in the short term. The money cannot disappear from the banking system: as long as banks borrow more from the ECB than is needed to fulfill the reserve requirements of the banking system, there will also be excess liquidity.
The Eurogroup made only small progress detailing decisions from the June summit. Spain will have more time to reach its deficit targets and recapitalisation plans are taking shape. But a lack of detail and differing interpretations will cause uncertainty.
We have updated our financial forecasts. We are keeping our outlook basically unchanged, expecting choppy trading over summer.
The ECB's easing measures are not likely to be over yet. However, it sees limits to what it can do, so Euro-zone governments need to do a big part of the heavy lifting, with the ECB making sure that its monetary policy helps the process.
We expect the ECB to cut the refi-rate by 25 bp at the meeting tomorrow but perhaps more interesting we also expect to see a cut in the deposit rate to 0.10%.
We expect that the ECB will try to come to the rescue of the ailing economy by trimming its deposit rate on Thursday. With the continued DKK strength, the Danish central bank will as a minimum be forced to follow suit, which will mean a negative CD rate in Denmark.
After all eyes being in Euro-zone events lately, next week’s heavy US data certainly has potential to catch the attention again.
All in all, there was notable progress at the Euro-zone summit, and the boost to sentiment should last longer than two hours this time. However, a lot of details remain in the dark.
The Euro area is moving ahead with the common banking supervisor, direct lending to banks and supportive buying in the markets. Positive but not a game changer.
The calls for the ECB to do more have become ever louder lately, while the central bank has tried to play down expectations of more bond purchases or further extra-long refinancing operations. Nevertheless, at the same time the central bank has been increasing its support via its more conventional refinancing operations.
We have made minor adjustments to our financial forecasts. The storyline is more or less unchanged.
Now the tough part begins: re-negotiating the terms of the Greek stability programme. The two sides are likely to be miles apart in their demands to begin with.
The statement from the G20 leaders contained a lot of good intentions again, but whether they will lead to any concrete implementation remains to be seen.
One should not expect any major risk rallies or bond sell-offs on the back of the Greek elections, we already saw notable corrections in markets ahead of the elections.
The pro-bailout parties secured enough seats to form a government at Sunday’s election. That is a relief to the markets, but does not solve the debt crisis.
With 17 countries trying to reach common decisions, differences in opinions are bound to arise. The Austrian Finance Minister Fekter let it slip in a television interview that also Italy might need financial help.
According to a senior Euro-zone official via Reuters, the Spanish banks could be recapitalized using EFSF bonds to avoid the problem of the preferred creditor status of the ESM. The bailout could later be shifted to ESM, but the extended loans would not become senior to other debt.
Contrary to our expectations, the ECB kept interest unchanged at today’s meeting. We expect a rate cut in July.
Can the Euro area survive a Greek exit? Will Spain ask for an EU/IMF bailout? What actions will be taken at the 28-29 June EU summit and will it be enough to secure the survival of the common currency in the longer term?
The fate of the Spanish banking sector is one of the major risks facing the Euro zone at the moment. Spanish banks will likely need much more state help than Bankia alone requires, and this will be too much for the Spanish government to stomach.
Politicians have started to show a sense of urgency, but decisive measures will take years to implement. Still the EU summit on 28-29 June might give some rough sketch of a road map for further integration.
After this week’s heavyweight US economic data, the spotlight is even stronger in the Euro zone again next week.
An increasingly clear picture is emerging of a US economy that has gained momentum and is slowly heading for a selfsustaining upswing, while Europe seems to be sliding into a deeper crisis than previously anticipated.
April data from the ECB revealed that Spanish banks actually decreased their government bond holdings by some EUR 3bn vs. average net purchases of some EUR 20bn in the prior three months. With a dark cloud hanging over the Euro zone at the moment, yields may need to rise notably to attract new investors to the markets.
Many have missed the upward move in short Spanish and Italian short yields lately. The rise in short rates is worrying both because it means that the country in question is facing high funding costs throughout the curve and since it signals increased shorter-term worries.
After another round of disappointing survey data we believe the time has come for the ECB to cut interest rates.
Today’s disappointing numbers point to a significant contraction in the Euro area in Q2 and shows that the Greek crisis is spreading to the German and French economies. Risk of rate cuts from the ECB during summer.
All eyes remain on anecdotal news on how depositors in Greece and outside the country are reacting to the recent events. In terms of economic data releases, the main focus will be on flash PMIs for May.
New elections have been called in Greece and so we look at the timeline of what might happen in the coming months and the consequences if a solution to Greece's problems is not found.
With market strains increasing rapidly, the ECB remains the one with the capacity to react fast. After the ECB has acted first to try to bring some calmness to markets, something could happen on the government front as well.
According to the Financial Times, Spain could be offered an extra year to hit the 3% of GDP deficit target. This is likely a step in the process, where the strategy of front-loaded austerity measures is rethought and economic growth given a higher priority.
With German bonds enjoying strong momentum, yields could fall even further. The pricing of a risk of some sort of a Euro-zone break-up will likely increase on the back of the Greek situation, while the Spanish situation continues to be another source of uncertainty.
Our latest take on Nordic and Global financial markets and economies.
The ECB decided to keep interest rates unchanged at today's meeting and gave no new signals.
Additional crisis measures are not on the cards at the ECB meeting today – but we see an increasing risk of an additional rate cut if the expected recovery of the Euro area fails to materialise.
Italian and Spanish bond yields rose notably in March despite continued support from domestic banks. This does not bode well for the future, as the pace of purchases by banks is not at least set to increase.
Bond markets appear due for a correction, but we expect next week’s events and economic data only to add to the gloomy sentiment.
The need for additional crisis measures from the ECB has diminished, but interest rate cuts have become more likely!
The big central banks have turned out to be much less inclined to QE than expected. We no longer expect QE from the Bank of England in May.
The G20 finance ministers will likely agree on increasing the resources of the IMF later this week. Such a decision, though not insignificant, is unlikely to change the course for markets.
We see rates continuing lower in the coming months and the EUR/USD unchanged around the current levels.
We see rates continuing lower in the coming months and the EUR/USD unchanged around the current levels.
Most news stories only report the jump in overall central bank borrowing by Spanish banks in March, but miss the increase in funds Spanish banks have in reserve to meet future funding needs. The funding position of Spanish banks – like that of the Spanish sovereign – is actually relatively good at the moment.
Even though the recent rise in Italian yields is worrying, the threat of an immediate funding crisis remains limited. Still, the pressure on Italian bonds is likely to continue in the near future.
The huge liquidity sloshing around is boosting the safest asset classes again, while Spanish and Italian bonds remain under pressure. This is likely to continue, until we see some better economic data again.
Today’s Spanish auction results further illustrate that the support from the ECB’s 3-year refinancing operations is waning. Spanish yields will likely continue to lurch higher, leading to higher uncertainty about the Euro-zone situation again.
The differing collateral policies implemented by national Euro-zone central banks put banks in various parts of the Euro-zone in different positions. Such policies increase worries about the cohesion of the Euro zone.
The huge amount of excess liquidity in the Euro-zone banking system is still favouring a flatter curve, carry is positive for flatteners, while the curve tends to flatten, when short rates start to rise. The 2-5-year curve should still have flattening potential left.
Earlier today the Eurogroup announced that the total size of the Euro area's firewall will be raised from EUR 500 bn to EUR 700 bn. This is a welcome move - which should have a positive effect on markets as well - if they can be bothered to care now that the ECB has doped everyone with the two 3-year LTRO's.
Spanish and Italian bond yields are likely to continue to creep higher, as the support from domestic bank buying fades. Such market action will likely increase general worries about the course of the debt crisis, keeping German bonds well-supported.
Fresh data from the ECB show that Italian and Spanish banks continued to purchase solid amounts of government securities in February. No doubt the ECB’s 3-year LTRO is the main reason behind this move – driving Italian and Spanish yields lower.
The ECB's bond purchases have been very modest recently. Arguably, bigger purchases would not even have been necessary lately. However, the Securities Markets Programme of the ECB has become more of a blunt weapon also in general, and has less potential to fight the debt crisis, if the need arises again.
The outlook for Dutch bonds looks much more clouded than that for their Finnish counterparts. Whereas Dutch bonds are burdened by political uncertainty, big deficits and another economic recession, Finland is making headway to balance its books.
The decline in composite PMI was driven by a 1.3 index point fall in manufacturing PMI to 47.7 in March.
The ECB kept all interest rates unchanged at todays meeting. At the same time Draghi used the press conference to signal stable rates ahead, while further 3-year LTRO’s are off the table.
After the record breaking allotment of EUR 523 bn in the ECBs second 3-year Long Term Refinancing Operation, attention has once again turned to the build-up of Target 2 balances.
The scene is set for further “risk on” after the ECBs second 3-year Long Term Refinancing Operation (LTRO) resulted in allotments of EUR 529.5 bn.
Considering the macro risks hanging over the global economy, we argue that markets may be too complacent. We see four downside risks that could materialise this year, undermining global growth and eventually negatively affecting investor confidence and market valuations of risky assets.
Ahead of the ECBs next 3-year LTRO it is interesting to note that the first 3-year LTRO from December prompted Italian and Spanish banks to go on a bond purchasing spree in January.
The ECB will release the results from its second 3-year operation next week and expectations have been set high that another huge liquidity injection would boost markets again.
Greece seems to be very close to a deal on a voluntary debt rescheduling, which could be announced later this week.
Three topics are worth mentioning about the EU summit Monday
Euro area PMI's surprised on the upside - driven by Germany.
France and Austria’s top AAA ratings fell victim of the sovereign debt crisis Friday night, when S&P downgraded nine of 16 Euro countries.
The continuous downgrade of strong rated issuers is making high quality collateral a scarce resource.
Making a case for why an improvement could be lurking beneath the fog of doom and gloom.
Taking the temperature of the cross currency basis swap market following the coordinated central bank actions to ease money market tensions.
Another year is over – a new year is beginning, and kill or cure will be the theme for 2012.
Just like the Jasmine revolution has overthrown regime after regime in the Arab world, the sovereign debt crisis is weeding out in European politics.
Nordea's Chief Analyst on the euro area presents his view on the latest developments in the European debt crisis.
• Future path of Greece and sovereign debt crisis highly uncertain • Only the ECB can comfort markets via committed bond purchases – directly or indirectly • Stay in the inner AAA-space, long duration, curve flatteners and long spread-over
Euro area inflation suprised on the upside in October, but we still think that most of the economic key figures are pointing towards an ECB rate cut in December. Not least the Euro area unemployment data for September, released today.
Flash PMIs for the Euro area support our expectation of a 25bp cut in the ECB’s refi-rate before the end of the year.
Flash PMIs for the Euro area support our expectation of a 25bp cut in the ECB’s refi-rate before the end of the year.
The Euro area debt crisis roils financial markets once again. Is a break up of the Euro area imminent or is the stand-off between Greece and Germany just another thorny step on the road? We take a look at consequences for financial markets.
In the late European session on Friday, the Spiegel story that Greece was considering leaving the Euro sent jitters through financial markets.
Central bank rescue to help only gradually. The past couple of months have clearly brought a turn for the worse in two respects.
Euro-zone leaders finally managed to show courage yesterday, and make tough decisions. Central in the decisions is an empowering of the EFSF/ESM with new mandates that strongly helps reducing the risk of contagion.
Slowing growth is increasingly putting downward pressure on asset prices and bond yields.
Inflation and rate hike fears have backed down in the past month, but with the economy continuing on the recovery track we think the retracement is just temporary.