StreetAccount Macro Summary: Eurozone

StreetAccount Macro Summary: Eurozone
Friday, April 29, 2016 10:19:52 AM (GMT)

  • ECB:
    • Praet indicates a high bar for further rate cuts: In an interview with Expansion, ECB chief economist Praet said the inflation outlook would need to deteriorate significantly to justify further reductions in interest rates. He noted that TLTROs and corporate bond purchase program hadn’t yet been implemented and that the global economy had improved since March. Praet emphasized the success of negative rates in improving financial conditions and this outweighed the effects associated with banks’ ability to generate earnings. He pointed out that low rates were in fact spurring demand for loans, and that this may increase margins in the future. He also ruled out helicopter drops, claiming the notion is not even discussed “informally” by policy-makers.
    • Nowotny says Eurozone not yet at point of discussing rate hikes: Reuters cited remarks yesterday by ECB’s Nowotny, who said the central bank’s measures have managed to prevent slide into deflation and the current policy aimed at spurring inflation should have the desired effect in the H2’16, but it is not possible to say exactly when. He added that ECB measures have clearly improved financing conditions but it’s not sensible to discuss rate hikes, until GDP and inflation improves. He noted that the ECB is operating on the assumption that a massive fall in oil prices will not materialize in the mid-to-near term.
    • Weidmann says expansionary policy appropriate: MNI cited ECB’s Weidmann (also head of the Bundesbank), who said risks of deflation in the Eurozone are limited, but warned of risks over fiscal dominance. He added that monetary policy is geared toward the medium-term outlook but that expansionary policy could create financial stability risks. He said he would welcome more transparent stability and growth pact rules (an EU agreement). He argued that the ECB’s price stability mandate does not mean it must push up inflation as quickly as possible or at all costs. Note, Weidmann's recent remarks have had a dovish tilt, which is a change in tone given his long-running resistance to ultra-loose monetary policies.
  • Greece:
    • Greek deal closer with Eurogroup to meet 9-May: Reuters cited EU officials, who yesterday said Greece and its international lenders are close to a deal on a package of bailout reforms and are working to agree further contingency steps by 9-May when an extraordinary Eurogroup meeting will be held in Brussels. The article said talks between Greece and its lenders have almost reached a conclusion on reforms agreed within the current bailout program, while more negotiations are needed on further contingency measures that Athens must commit to in exchange for debt relief negotiations. It cited European Commissioner Moscovici, who said all parties are 99% of the way there, converging on almost all aspects.
  • Italy:
    • Contributions to Italy’s bank rescue fund undershoot: The FT reported that Italy’s banking rescue fun Atlas has closed with a value of €4.25B, undershooting first predictions the fund would drum up support of up to €6B and limiting its scope for dealing with the country’s bad loans. Recall, Reuters earlier this week cited sources who noted that the Atlas fund was reluctantly accepted by some of the financial institutions that committed to it, including four of the institutions that eventually agreed to put money in the fund. Sources told Reuters that some bankers involved in the scheme voiced fears the fund would expose their own banks to the self-inflicted problems of a few lenders.
  • Portugal:
    • Bank of Portugal to challenge court injunction on Novo Banco bonds: Reuters reported that the Bank of Portugal will challenge a provisional injunction by a Lisbon court that suspended part of the central bank-ordered transfer of bonds from state-rescued Novo Banco back to "bad bank' Banco Espirito Santo (BES). The Bank of Portugal said that there has been no definitive decision by the court and the injunction does not affect Novo Banco assets. "The administrative court provisionally issued a precautionary injunction concerning one series of bonds without hearing the Bank of Portugal's position. The Bank of Portugal respects this provisional decision, but will immediately request that it be lifted,” it added.
  • Banks:
    • Commission says EU not fully prepared to deal with failing banks: Reuters cited the European Commission, which said the European Union is not yet fully prepared to handle banking collapses in the event of a new financial crisis, urging member states to agree on pooling more resources to weather future storms. "There is still lots to be done to make sure that we are in the best possible position to resolve a failing bank," the EU Financial Services Commissioner Jonathan Hill said, adding that the bloc needs to provide a credible long-term backstop for the single resolution mechanism. The story highlighted that as part of the banking union, Eurozone states have agreed on common supervision of the bloc's banks and have set up the Single Resolution Fund (SRF) to rescue ailing lenders, but have failed to agree on a financial backstop to support the SRF in its first years.
    • ECB hikes supervisory fee on European banks: In a press release, the ECB said it is hiking the amount it charges to carry out its supervisory duty over banks. The central bank will hike fees by 23.9% this year, recouping a total of €404M from around 3,300 European banks. The decision comes after a thorough analysis of the ECB’s experiences over the first year of carrying out its supervisory tasks. The ECB now has direct supervisory responsibility over 129 European banks, which will have to foot nearly 90% of the bill. It said costs could increase further as the ECB will hire an extra 160 staff in its supervisory division this year and more in 2017.
  • Bonds:
    • ECB free money no fix for companies' glum mood: Reuters discussed that while the ECB’s stimulus ramp up to include corporate bonds in QE has allowed large-cap companies borrow almost for free, its effect on the Eurozone economy is likely to be small. The article argued that despite corporate bonds being purchased under QE, company executives remain cautious about investing or hiring because they are downbeat about global growth. The article noted that corporate executives suggest that cheap ECB loans, which come as borrowing costs are already at record lows, will not improve their mood. The story added that some see an additional risk in the ECB taking on private debt without collateral, but ECB rate setters have publicly defended the plan.
  • EU:
    • EU leaders opposed re-run of ‘lead candidates’: Sueddeutsche Zeitung cited documents it has obtained which showed that UK Prime Minister Cameron and German Chancellor Merkel are among 27 EU leaders opposing the concept of ‘Spitzenkandidaten’ or lead candidates for European Commission President – who are nominated by the political families in the European Parliament. The article noted the concept was first introduced at the European Elections in 2014, and saw the election of Jean-Claude Juncker as the lead candidate of the European People’s Party (EPP), which held most seats in the parliament.

Subjects: News and Summaries - EU, Recurring Summaries - EU, Politics - EU