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CITI: The ECB’s New Plan Could Be As Worthless As The ECB’s Old Plan
Citi is out with its reaction to the bond-buying plan ECB President Mario Draghi revealed at the central bank’s big meeting earlier today. Rates strategist Jamie Searle asks some pointed questions about the new program (aka the OMT) – namely, whether it’s robust enough to avoid the same fate that the ECB’s previous attempts at bond buying (via the SMP) did, where [...] Citi is out with its reaction to the bond-buying plan ECB President Mario Draghi revealed at the central bank’s big meeting earlier today.
Rates strategist Jamie Searle asks some pointed questions about the new program (aka the OMT) – namely, whether it’s robust enough to avoid the same fate that the ECB’s previous attempts at bond buying (via the SMP) did, where sovereign bond yields in Italy and Spain ended up moving higher after implementation. Searle [...] From Goldman’s Dirk Schumacher ECB meeting: Introducing the OMT The announcements made at today’s ECB press conference were broadly in line with our expectations. An overwhelming majority of the Governing Council agreed to “address severe distortions in government bond markets, which originate from, in particular, unfounded fears on the part of investors of the reversibility of the Euro”. We view the ECB’s determination to provide a “fully effective backstop” as credible and, [...] Sign of Stock bubble: Money printing drives stock prices up but profitability of companies remain weak and likely to get worse BofA: More Bad Than Good Came Out Of Today’s ECB Announcement Markets are definitely rallying, but in a post-meeting note to clients today entitled ECB not about to buy bonds, Boone writes that “for us, the negatives marginally outweigh the positives from the meeting.” The big takeaway: “The decision-making process runs along two channels: 1/ the [...] It’s now been more than six months since any buys have been made. http://www.ecb.europa.eu/mopo/implement/omo/html/communication.en.html With Mario Draghi clearly indicating that he wants to reactivate the ECB’s Securities Markets Program last week, fixed-income investors are betting big that the European Central Bank will insert itself back into the bond-buying business at this Thursday’s meeting. They’re getting ahead of themselves. ECB President Draghi faces numerous obstacles before representatives of the all-important German Bundesbank will support an SMP restart with their votes on the ECB’s governing council. Not least [...] While hope remains, Citigroup’s Steven Englander notes that the much stronger than expected ADP has probably shifted market expectations towards neutral, but like us he believes the market remains more hopeful of an aggressive fed than wary of disappointment. In parentheses below, we indicate what we think will be negative, neutral and positive surprises from an investor viewpoint. Fed: Negative surprise – downgrade of forecast but nothing much else in way of change from [...] With Mario Draghi clearly indicating that he wants to reactivate the ECB’s Securities Markets Program last week, fixed-income investors are betting big that the European Central Bank will insert itself back into the bond-buying business at this Thursday’s meeting. They’re getting ahead of themselves. ECB President Draghi faces numerous obstacles before representatives of the all-important German Bundesbank will support an SMP restart with their votes on the ECB’s governing council. Not least [...] Earlier we heard Goldman’s talk down of Draghi’s comments, which we will not tire of saying, wereabsolutely nothing new. Now here is Citi’s Jurgen Michel throwing cold water in the face of all those who believe that the ECB (which can’t really do more LTROs unless it is willing to accept Zynga’s virtual farms as collateral) will save the day with more direct intervention. To wit: “in our view, such [...] Germany and France have been forced to unleash the full powers of the eurozone’s bail-out funds because the European Central Bank refused to buy any more Spanish and Italian debt, Brussels sources have claimed. With Spanish and Italian borrowing costs in the danger zone, European leaders hoped the ECB would re-start its bond buying programme to bring yields down. But the central bank apparently “declined”. “Leaders will claim that this is their [...] From Pragmatic Capitalism: JPMorgan has some good comments on the markets and the effect of potential future government actions. For now, they’re saying the markets will likely have trouble finding their footing without a robust policy response or stabilization in the macro data. Interestingly, they do NOT believe QE3 will be a positive catalyst going forward: “For a sustainable rally we would need the following: either a stabilisation in macro momentum or, more [...] Germany remains vehemently opposed to any euro-wide deposit guarantee scheme as the head of the association of savings banks believes it: “would lead to a spreading of risks to the detriment of German financial institutions” and that this would “increase the burden for national protection schemes, which is not in the interest of German banking clients“. Not exactly encouraging and along with the fact that Goldman notes that Germany’s ‘growth plan’ (which includes [...] The first details of the Greek bond deal are leaking out via Reuters, and we now learn the reason for the Greek bond sell off in recent days: UNDER GREEK DEBT SWAP, PRIVATE SECTOR WILL GET 3% COUPON ON BONDS FROM 2012-20, 3.75% COUPON FROM 2021 ONWARDS [2021... LOL] by ZH A number of headlines from Bloomberg, via Die Welt, that the ECB will undergo a bond swap with the NCBs on their greek government bonds and the ‘profit’ will flow to governments. *ECB SWAPPING GREEK BONDS FOR NEW GREEK BONDS, WELT SAYS Despite disappointing auction results in France, the downgrade hangovers (sell the rumor, buy the news?), and increasingly likely Greek PSI talk epic-fail, most European sovereigns are rallying modestly on the day. Given the expected shift in the AAA benchmark used for margining(dropping higher yielding France ‘AAA’s as they are downgraded will lower AAA benchmark significantly and implicitly widen the yield differential for other sovereigns), it is perhaps no surprise that TPTB [...] Our Earlier Discussion of the relationship between ECB and Fed balance sheets as the driver of risk correlations this year seems particularly timely as we are seeing quite notable divergences among US asset classes and FX flows today. EUR is now up relative to the USD on the day (DXY is down and tracking stocks higher), Treasury yields are falling fast and the curve flattening (2s10s30s dropping rapidly) and Silver is rallying [...] |
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Moody’s: “The ECB Can Do No More Than Buy Time”
It would be odd to suggest that one of the most scathing critiques of the ECB’s attempts to talk up the market on nothing but hope, promises and expectations would come from rating agency Moody’s, yet that is precisely what has happened. With Swiss, Dutch, Finnish, and German short-dated bonds once again hitting new record low (negative) rates (and Italian 10Y is weakening), it would appear that at least some of [...]