Posts tagged 'ECB'

We are the ECB. You will be assimilated

Or moved into riskier assets by the ECB’s corporate bond buying machine (CSPP to its friends).

Resistance may be futile but we’ll have to wait to make sure.

To move into those riskier assets you’d like to think that eventually the search for yield will become a real, worthwhile thing in Europe again. And not everyone buys that – Credit Suisse for example point out that over the last 2.5yrs in particular government bonds (bunds) have outperformed both high and low yielding credit assets. Their point is that “the time to hunt for yield as a dominant strategy (rather than as a short-term trade) might actually be when yields start to rise.”

But BofAML’s European credit team think it’ll maybe happen a bit sooner: Read more

It feels good to be CSPP’d

That’s the ECB’s corporate sector purchase programme (CSPP), of course, which is having what looks to be an easy-to-spot effect on the cost of borrowing for those lucky enough to be inside the fold.

From Citi:

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Brexit, the Target2 angle

Everybody knows much of the City of London was vehemently opposed to Brexit because of fears of what might happen to banks’ interests if so-called “passporting” rights into and out of the European system were lost.

What is less talked about, however, is Brexit’s impact on the European payments clearing system, Target2 — and how the passporting issue connects by way of Target2 to the realm of sovereign monetary policy.

At the absolute heart of the matter is the status and treatment of payment systems worldwide, and whether or not they can really be treated as something independent and thus distinct from national monetary policy (and hence open to commercial competition) — or as integral to sovereign interests. Read more

Koo: Why US Quantitative Easing “worked” better than other QEs

This is a guest post from Richard Koo, chief economist of the Nomura Research Institute and, amongst many other things, author of “The Holy Grail of Macroeconomics, Lessons from Japan’s Great Recession”, which lays out his balance sheet recession thesis in detail.

The post is an updated extract from his most recent note for Nomura and reproduced here, with his permission, for your arguing pleasure…

The US, the UK, Japan, and Europe all implemented quantitative easing (QE) policies, but the understanding of how those policies work apparently differs greatly from country to country, leading to very different outcomes. With the US economy doing better than the rest, there has been some debate in Europe as to why that is the case. Read more

This Bundless world…

One of the little-remarked consequences of the Brexit vote in the UK is that the subsequent generalised tightening of sovereign yields across the eurozone means that even less euro-core government paper qualifies for Draghi’s QE programme. There are dangers in the ECB ignoring this looming problem. Here’s a cheat sheet on action that could be taken.

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Don’t count on European credit growth

We’re a little bit late to Friday’s note from Citi’s Hans Lorenzen and Aritra Banerjee, but it’s a pretty good assessment of the tensions in European credit markets at the moment:

Without implying causation, corporate credit spreads tend to be highly correlated with European bank stocks. But recently, those conventions have clearly broken down. Most notably, returns on non-financial credit have seemingly decoupled completely from returns on bank equity.

But bank credit returns have also diverged notably from equity returns. And incidentally, the correlation between financial and non-financial credit spreads has broken down too – in case you were in any doubt.

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So you want to buy more Bunds Mr Draghi?

Yeah. Fun. This is also fun:

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We may be misreading this, but it seems Deutsche still has a problem with the ECB

ICYMI on Wednesday, here’s Deutsche’s chief economist David Folkerts-Landau taking another, expanded, shot at the ECB:

Over the past century central banks have become the guardians of our economic and financial security. The Bundesbank and Federal Reserve are respected for achieving monetary stability, often in the face of political opposition. But central bankers can also lose the plot, usually by following the economic dogma of the day. When they do, their mistakes can be catastrophic.

Today the behaviour of the European Central Bank suggests that it too has gone awry. After seven years of ever-looser monetary policy there is increasing evidence that following the current dogma, broad-based quantitative easing and negative interest rates, risks the long-term stability of the eurozone.

Already it is clear that lower and lower interest rates and ever larger purchases are confronting the law of decreasing returns. What is more, the ECB has lost credibility within markets and more worryingly among the public.

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The ECB’s momentous step into corporate asset purchases

The ECB will begin something truly unprecedented on Wednesday June 8. It will start buying corporate debt in a bid to push inflation to the hallowed 2 per cent mark and boost growth with it. What’s more, it will buy this debt both in the secondary market and the primary one.

Known as the corporate sector purchase programme (CSPP), market watchers say the move could push the cost of borrowing in euros to new lows. Some even argue the programme could become the central bank’s most market disruptive intervention yet. Read more

Remember Target2 imbalances? Well, they’re back…

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JP(wh)Y? revisited. And a break in the currency wars?

This post will be made up of two pieces. The first will try to explain why JPY continues to defy Japan’s negative rate-led demand for currency weakness. The second will add words to this picture from HSBC which proclaims a break in the (so-called, he adds hastily) currency wars, predicated mostly on said JPY strength:

At last sighting JPY was hovering at about Y108. That’s not good if you are the BoJ’s Kuroda or the overarching Abe, particularly because FX strength can beget more FX strength. The question is why did the yen start this slide: Read more

Helicopter spotting

Nick Rowe is the latest to try and define a helicopter drop. Cutting through the faff, it comes down to the idea that helicopter money is permanent. Which is problematic since we’ve recently been told nothing is permanent and have basically bought that argument.

So, yeah, how are we going to know a helicopter drop when we see it? Take this for example:

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Was a weak euro last year’s necessity?

An important question for anyone who thinks the euro area needs to keep its currency weak to grab foreign demand. Or who thinks that’s what the ECB thinks, anyway.

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The ECB, liquidity fear and an expandable shopping list

The ECB did stuff last week, namely it cut rates while downplaying further cuts, tried to protect the banks under its care from negative rates and pledged to boost its balance sheet.

That was considered, after some confusion, impressive by markets, amongst other things because of the ECB’s shift to buying up private assets — “investment-grade euro-denominated bonds issued by non-bank corporations established in the euro area are to be inccluded in QE,” as Deutsche summarised while others wondered aloud about what else the ECB might end up buying. Read more

A Draghi day menu

A cut out and keep guide to trading the ECB, courtesy of Deutsche, do click to enlarge:

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The Swiss banking response to NIRP? Increase interest rates

Negative central bank interest rates yet rising bank net interest income. Where else but Switzerland?

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Central bank ammo, cut out and keep edition

By Morgan Stanley, do obviously click to enlarge:

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An ECB rates scenario guide

Courtesy of Nishay Patel and Justin Knight at UBS, ahead of the expected easing of policy from the ECB on Thursday. Click to enlarge…

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Currency wars everywhere, euro and underwhelming excess reserves edition

First, on the rather small proportion of euro area bank balance sheets taken up by excess reserves, charted by Credit Suisse’s Neville Hill and Peter Foley:

Or: Read more

The ECB is different (and should be treated as such)

We wrote — when talking about the ECB’s potential move to a tiered depo facility which would allow a deeper cut than expected into negative territory on Thursday – that Draghi was in the somewhat relaxed position of being able to follow where other central banks had gone before.

We were of course referring to the Swiss and Danish central banks, which are currently at -75bps versus the ECB’s -20bps and have in place versions of the tiered model being mooted for the ECB.

But… Nomura’s Jens Nordvig thinks we were being too casual in our comparison. The ECB needs to be analysed as its own central bank because: Read more

€620bn worth of (potentially tiered) euro nuts

A tiered depo rate (to be explained below) coming from the ECB at their meeting on Thursday, you say?

Allowing them to potentially push past the expected (per our inboxes) coming cut in the depo rate by 10bps to -0.30 per cent, alongside other easing measures?

Well… the mooted tiered system itself wouldn’t be unprecedented and we look forward to even the expected cut allowing our go-to measure of euro-nuttiness to keep ticking up. From JP Morgan’s Niko Panigirtzoglou and team over the weekend: Read more

Towards global hyper fungibility

The euro may have been pointless, but it might have been a whole lot less pointless if there’d been political union from the onset. So implied Mario Draghi, ECB President, at the BoE Open Forum on Wednesday.

For the laissez faire radicals out there, here’s how he went on to define the nature of “truly free” markets in that context (our emphasis):

Consider the case of markets that are truly open – by which I mean, as open as the Single Market of the European Union, where internal frontiers have been abolished entirely, where passporting of services across the entire EU is a right, not a privilege.

In this situation, national governments, or national courts of law, cannot alone provide full protection to their citizens against abuse of property rights or any form of unfair competition that may arise from abroad. Nor can they alone protect the rights of their citizens to carry out business abroad unimpeded by protectionist restrictions. For the market to be truly free, there needs to exist a judiciary power that can enforce the Rule of Law on all, everywhere. It has to have jurisdiction across the entire market.

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For the world is cold and less full of inflation

So charted by Citi.

As they say, the coolness of global inflation is not just an energy price story:

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Who sold European bonds?

Someone had to, because the net supply of new bonds was minimal and the European Central Bank has been buying €60bn per month.

Foreigners? No, according to a chart from Citi’s Han’s Lorenzen, it was the locals:

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What is hyper liquidity made of?

Peter Stella is an experienced IMFer on a crusade to champion base money understanding in a world of hard money obsessives who refuse to listen to reason.

From his latest blog post this week:

Bank reserves are demand deposits held at the central bank. Individual banks can and do transfer deposits among themselves constantly during business hours through electronic large value transfer systems (LVTS). Among the universe of LVTS, the largest are FEDWIRE and CHIPS in the US, CHAPS in the UK, BOJNET in Japan and TARGET2 in the Eurozone. From an individual bank’s perspective, reserves are “ultimate” liquidity—available instantly in real time to satisfy payments obligations to other banks.

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El-Erian: Reaction to an insightful ECB press conference

The writer is Mohamed El-Erian, chief economic adviser to Allianz and chair of US President Barack Obama’s Global Development Council.

Here are three quick takeaways from today’s press conference by the European Central Bank: Read more

Eventually, the ECB will have to make a choice…

Easier than grabbing from the wires, from @ecb:

And on that choice…. This, from RBS’s Alberto Gallo, is timely: Read more

El-Erian: It’s about the ECB…again

The writer is Mohamed El-Erian, chief economic adviser to Allianz and chair of US President Barack Obama’s Global Development Council.

Wondering why European peripherals are relatively well behaved while virtually all other risk assets have sold off this morning?

It need not be about irrational or misinformed markets. Instead, it is consistent with expectations of additional market intervention by the European Central Bank.

Concerns about China and Greece are fueling increased risk aversion. Equities are selling off, hard duration (including German and US government bonds) is rallying, commodities are getting crushed, and emerging market currencies are under pressure. Read more

A radical idea to bypass the Greek government

Citi’s Willem Buiter-headed team of economists provides an interesting external solution for the Greek debt crisis in an opinion piece late on Monday: bail out Greek banks but not the Greek government.

Remember, the problem for eurozone banks is part of their core capital is supposed to be made up of liquid instruments like government bonds, but in the case of Greece these bonds are as toxic as subprime securities and depreciating quickly.

Even if the ECB continues accepting Greek bonds as collateral for Emergency Liquidity Assistance, the terms would no doubt involve much larger haircuts, bringing us back to a 2011 capital hole scenario very quickly. So, it actually makes more sense for Greek banks to start swapping government bonds into different types of assets. Read more

Greece shows ECB’s stress tests were nonsense

Remember the Comprehensive Assessment? You know, the European Central Bank’s report in October 2014 that said three Greek banks were adequately capitalised to survive a stressed scenario thanks to their fundraising efforts earlier in the year, while the fourth was only off by five basis points?

We ask because the ECB seems to have forgotten. Otherwise, we can’t think of why the euro area’s central bank is choking off Greek lenders and effectively forcing the Greek government to impose capital controls. (Immense thanks to Karl Whelan for making this point at our panel at Camp Alphaville.)

To see the oddity, it helps to explain what central banks are for. Read more