Securitisation has gotten a bad rap thanks to its association with dodgy underwriting during the bubble. Yet bundling loans originated by banks and selling them to investors in the capital markets could be just what is needed to boost the flagging euro area economy.
Before we get into this it might be worth opening the transcript of Thursday’s ECB presser and Q&A with Mario Draghi and doing a “ctrl+f” for the phrase “structural reform”.
TL;DR: the answer is 19. (h/t to Aurelija Augulyte). There 15 mentions in August, and 5 in July.
But what’s a central banker to do? As Marc Ostwald at ADM Investor Services International says, “one cannot stress enough that believing that France and Italy will deliver meaningful (and indeed ‘growth friendly) reforms is an act of faith, for which there is little or no historical precedent.” Read more
Some pre-ECB musings from Lombard Street’s Dario Perkins (with our emphasis):
Market economists remain divided on the issue of whether the ECB will do QE, not because they disagree about whether it is needed – here there is near unanimity – but because they aren’t sure Mr Draghi can overcome philosophical and technical opposition from some of his colleagues…
Fortunately, those opposed to QE at the Bank seem to have softened their stance a little recently.
Whilst we ponder over what Draghi might or might not do at tomorrow’s ECB meeting, here’s an interesting point from Ramin Nakisa and Stephane Deo at UBS that’s worth bearing in mind during the press conference:
The chart below shows how the risk premium has evolved over the recent past: it shows how many basis points of spread are demanded by investors in exchange for a one notch downgrade. While Europe Area spreads were extremely cheap during the crisis, they are now too expensive.
A week ago, Mario Draghi set euro policy-watchers all a-flutter, departing from his prepared remarks at Jackson Hole to issue a kind of blunt confession that he and his colleagues had run out of excuses for the ongoing depressed level of inflation across the eurozone, and that maybe some sort of reaction was required. Cue a quall of ECB QE speculation.
Then, on Wednesday this week, a story appeared on Reuters stating that, according to “ECB sources,” there was unlikely to be any new policy action from the ECB at its September meeting next week unless August inflation figures (published on Friday) showed the eurozone sinking significantly towards deflation.
The story remained exclusive to Reuters. But the message was clear: ECB officials are worried that market participants were reading too-much-too-soon into Draghi ad-libbing. Read more
The deadline for European institutions to be compliant with the Single European Payment Area (SEPA) standard came and went on August 1.
In theory, that means anyone in Europe should from now on be able to make and receive payments across the union on an entirely frictionless basis. For the euro project it’s the realisation of one of the system’s key objectives.
It allows businesses to grow and to broaden their reach within Europe, and reduces costs by providing a standardised framework for all their payments. Businesses can now use a single system and set of accounts for all their euro trade in Europe.
More seriously, spot the caveats. A few members of the ECB governing council have since added to the noise around ECB QE — Nowotny, Mersch, Constancio, Coeure and Weidmann — but we feel better no informed than when the presser ended on Thursday. Read more
The ECB cut rates unexpectedly on Thursday. While there was market consensus that easing was coming, there was little agreement on the form in which the easing would take place. A cut was seen as stifling the ECB’s future flexibility by taking it to the lower bound and flirting dangerously with negative rates, while further LTROs were seen as potentially constrained by AQR-related stigma.
But the big news from Draghi’s press conference, however, is that the ECB is clearly not afraid of the former, and not necessarily scared of the latter either.
The ECB ended up cutting the main refinancing rate by 25 basis points, whilst reconfirming its commitment to fixed-rate tender full allotment in its MROs and special term refinancing operations, and its three-month LTROs. Read more
Greg Fuzesi is quietly fuming. We get a post-holiday presser from Mario Draghi on Thursday and the JP Morgan economist really would like the ECB chief to use the opportunity to expand upon the word “extended” when offering interest rate guidance. Read more
From a very dovish Mario Draghi’s press conference following the European Central Bank’s decision to keep its key rates on hold (with our emphasis):
Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. Incoming information has confirmed our previous assessment. Underlying price pressures in the euro area are expected to remain subdued over the medium term. In keeping with this picture, monetary and, in particular, credit dynamics remain subdued.
LONDON, May 3 (Reuters) 13.04 – The euro pared gains while German Bund futures edged up on Friday after European Central Bank policymaker Ewald Nowotny said the central bank was open-minded about taking deposit rates into negative territory.
Nowotny said he was “astonished” by the market’s reaction to his comments earlier in the day, when he said negative deposit rates were not relevant in the near term.
“Oh, Hollande…” said Mario Draghi as the rest of us wondered if he had or hadn’t entered the supposed currency wars. Or if, in fact, the question was redundant.
The euro’s dive on Thursday was impressive and clearly the result of ECB president Draghi’s comments after the ECB’s rate setting meeting. But whether it was justified or not is very much contested. Read more
On the one hand they can send an immensely powerful message. On the other hand they have the power to seriously and dangerously disrupt core economic mechanisms by magnifying the physical hoarding incentive — this helps to create a negative feedback loop that ultimately crowds out capital and leads to voluntary capital destruction. Read more
On Thursday, ECB president Mario Draghi was in Milan to give a speech at Università Bocconi. It’s a charming read, as the policymaker reviews the eurozone crisis in pleasantly digestible terms even by Friday morning standards.
Once the crisis was underway, and sovereign spreads had widened out, a debate started: Read more
The market has been waiting for Spain to request its very own Enhanced Conditions Credit Line for quite a while now. It’s the road to OMT. And for a (very) little while just last week while it appeared we were only a weekend away.
But it’s now looking increasingly like we are not gonna get to see any OMT buying at all in 2012. Sad. Read more