Posts Tagged ‘ECB’

Euro area: Credit rebounds sharply

We continue to believe that the credit cycle has legs and we therefore maintain our forecast for the euro area GDP growth unchanged at 1.8% for 2016. Nevertheless, we also remain cautious. January bank credit flows came before the most severe episode of financial market stress, which could have an impact on banks’ balance sheets […]

Euro area: Revisiting the ECB’s Lower Bound

We expect the ECB to cut the deposit rate to -0.50% by June, probably in two steps (by 10bp in March and by another 10bp in June), as part of its response to weaker inflation prospects and tighter financial conditions. That said, the adverse consequences of negative rates are becoming increasingly visible as foreign central […]

The dark side of negative interest rates

Recent chronology of events Since 2009 and up until recently, central bank action has helped to stabilise equity markets. Looking at recent events, it now seems that the opposite is becoming true. The last two monetary decisions (ECB on 3 December 2015 and BoJ on 29 January 2016) coincided with intermediary peaks in developed market […]

Euro area: good and bad reasons to worry about the euro area outlook

Although we have left our forecasts for euro area GDP unchanged – 1.8% growth expected in 2016, well above trend – downside risks have intensified in recent weeks. There are both good and bad reasons to worry about the recovery but, in short, the euro area can continue to do well despite sluggish global growth, […]

Euro area: little evidence of large second-round effects of oil on core inflation

Draghi’s latest hint at fresh monetary easing heralds a six-week period of waiting and guessing what the next measures might look like. One critical factor driving the decision will be the ECB’s assessment of indirect effects of lower oil prices on inflation. Draghi promised “a more comprehensive picture” of those various transmission channels at the […]

European monetary policy: new ECB easing package now likely to be announced in March

The ECB left all policy settings unchanged at today’s meeting, as widely expected. At the same time, the overall tone of the press conference reflected yet another significant dovish shift in the ECB’s communication – one that the Governing Council agreed on unanimously – strengthening our view that fresh easing measures are likely to be […]

Currencies: persistent market volatility should support funding currencies

Instead of looking at single currencies, it is sometimes interesting to look at broader themes to have a better understanding of how a certain group of currencies might behave. Among the best-known themes or strategies are carry trades, which are based on the principle of systematically buying high-interest-rate currencies and selling low-interest-rate currencies. Carry trade […]

ECB Policy meeting preview: The central bank may have no choice but to act again by the Spring

Two weeks into 2016, six weeks after easing policy at the December meeting, here we are again: the ECB is under pressure to do more. Investors continue to react to a number of related concerns, including the uninterrupted fall in oil prices, volatility in Chinese equity and currency markets, uncertainty over China’s growth and medium-term […]

Deflation risks, QE and ‘Grexit’ revealing the cracks in the eurozone edifice

Inflation is very subdued throughout the eurozone. But it is not so low just because oil prices have been nosediving. Depressed aggregate demand acts as a fertile breeding ground for a deflationary spiral to take root. Confronted by this risk, the ECB has at long last provided its unconventional response to meet this challenge. However, […]

Three of the seven key developments for 2015 are already shaping investment strategy

Eurozone policy mix remains incomplete The European Central Bank had already signalled its intentions and did not disappoint investors when, on 21 January, it announced a plan to acquire sovereign debt to a minimum of €60bn monthly up to September 2016.To understand what this level of quantitative easing can do to boost the eurozone economy, […]

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