Wednesday, 14 November, 2018

European Central Bank signals end to QE but interest rates to stay low

Drama Over?       Italian two-year yields though not back to pre-crisis levels are much lower than in late May Drama Over? Italian two-year yields though not back to pre-crisis levels are much lower than in late May
Nellie Chapman | 17 June, 2018, 05:42

We believe that market is increasingly focused on the European Central Bank meeting, which is today, as the current bond-buying program of €30 billion per month will expire in September this year.

"Governments need the discipline of the free-functioning market as an incentive to focus on sound sustainable policies that promote growth in their economies and businesses".

The ECB is expected to say its $3.00 trillion bond-buying policy has done its job in bringing the 19-member currency bloc back from the brink of collapse, according to Reuters.

He proceeded to explain that he meant not only high-debt countries needing to rebuild their "fiscal buffers", but also that other, unnamed, countries need to intensify "efforts towards achieving a more growth-friendly composition of public finances".

"Looking ahead, underlying inflation is expected to pick up towards the end of the year and thereafter to increase gradually over the medium term, supported by our monetary policy measures, the continuing economic expansion, the corresponding absorption of economic slack and rising wage growth".

Both the Fed and the European Central Bank have said that their next moves will depend on what the economic data says, and if growth is strong enough, they'll raise rates more quickly.

The rates on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain at 0.00%, 0.25% and minus 0.40%, respectively.

French tele-services provider Teleperformance jumped 5.8 per cent to a record high after agreeing to buy India-based Intelenet from U.S. private equity firm Blackstone for US$1 billion. But it could also increase returns for savers and make it easier for pension savings to grow. Although it might seem like a positive development, markets' enthusiasm for the Euro sank when it appeared that interest rates would remain stagnant through the summer of next year.

There's little doubt, however, that the European Central Bank stimulus program has helped heavily indebted countries like Italy borrow at unusually cheap rates.

Shares in heavyweight drugmaker GSK rose 2 percent.

Italy's new populist government is a coalition between the anti-establishment 5-Star Movement and the anti-immigration League.

US crude output has risen nearly 30 per cent in the last two years to a record high of 10.9 million bpd.

The ECB Chief, himself from Italy, stressed that it was not of any interest to anybody to discuss the exit of the country from euro.

The rate of inflation is expected to be 1.7% in 2018, up from the 1.4% predicted previously due to higher oil prices.

After nine years of steady if uneven recovery, the United States is now growing at a pace topping 4 percent, unemployment is as low as it has been this century, and inflation has safely edged up toward an official target.

"Notwithstanding the initial reaction, we maintain our view that the end of QE will underpin the euro and lead to upwards pressure on Eurozone bond yields". The Dow and Germany's DAX both touched record highs earlier this year.

"Could Mr Draghi leave office in November 2019 without ever having managed a rate hike in 8 years of service?"