Choose Language
March 8, 2019
NewsA proactive ECB becomes more dovish than markets anticipated
The ECB has surprised observers with a dovish move on monetary policy, extending the time horizon in which it will not raise interest rates and unveiling more cheap funding for banks.
ECB president Mario Draghi and the rate-setting governing council want to forestall a growth slowdown in the EU, with the large German and Italian economies both struggling.
The stronger move than economists had predicted came as the US Federal Reserve and other central banks around the world are also holding back on rate hikes.
What were the decisions taken yesterday?
- Keep key ECB interests unchanged. A possible rate hike has been pushed out to 2020 at the earliest
- Keep on re-investing the principal amounts from maturing securities that were purchased during the asset purchasing program that ended in December 2018
- A third cheap funding scheme for banks, the Targeted Long-Term Refinancing Operation (TLTRO III) consisting of two-year loans to help avoid a squeeze on credit, which could add to the slowdown in Europe. The program starts in September 2019 and ends in March 2021. Further details on the precise terms of TLTRO-III will be communicated later.
- Continue conducting lending operations as fixed-rate tender procedures with full allotment for as long as necessary
During the following press conference the ECB confirms that the latest economic data has been weaker and they expect the weakness to last through 2019. The risks surrounding the euro area growth outlook are still tilted to the downside, on account of the persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets.
Reactivating the QE program was not mentioned but all options remain open.
Reading the minutes of the meeting we can conclude :
- The inflation target of the ECB will take longer to achieve
- The ECB acknowledges a difficult economic situation and a weak outlook
- The ECB is ready to act and wants to be proactive
- “Japanisation” of the monetary policy is again one step closer
Following the announcement, European bond yield took a dive lower and the German 10Y ended the day at 0,07%, the EURO also weakened by 1% against the USD to 1,12. The reaction on the equity market was initially positive but that was short-lived. The details on the growth and inflation outlook discussed during the press conference pushed equity markets lower again and the STOXX600 closed the day with a loss of 0,43%.
Financials were the underperforming sector yesterday. The EuroStoxx Banks index closed the day at -3.32%. The fact that banks will have to deal with negative interest rates for a prolonged period and a weaker forecasted economic growth were a very negative cocktail for bank stocks.
Our take :
The decision and speech comfort our view on the European economy, which has been more dovish than the consensus for a few months. It also confirms our long-held conviction that the ability of the ECB to “normalize” monetary policy upwards is in fact quite limited by the macro situation. The latter remains a burden for current and expected earnings, and comforts our strategic underweight positioning on European equities.
Disclaimer
All financial data and/or economic information released by this Publication (the “Publication”); (the “Data” or the “Financial data
and/or economic information”), are provided for information purposes only,
without warranty of any kind, including without limitation the warranties of merchantability, fitness for a particular
purpose or warranties and non-infringement of any patent, intellectual property or proprietary rights of any party, and
are not intended for trading purposes. Banque Internationale à Luxembourg SA (the “Bank”) does not guarantee expressly or
impliedly, the sequence, accuracy, adequacy, legality, completeness, reliability, usefulness or timeless of any Data.
All Financial data and/or economic information provided may be delayed or may contain errors or be incomplete.
This disclaimer applies to both isolated and aggregate uses of the Data. All Data is provided on an “as is” basis. None of
the Financial data and/or economic information contained on this Publication constitutes a solicitation, offer, opinion, or
recommendation, a guarantee of results, nor a solicitation by the Bank of an offer to buy or sell any security, products and
services mentioned into it or to make investments. Moreover, none of the Financial data and/or economic information contained on
this Publication provides legal, tax accounting, financial or investment advice or services regarding the profitability or
suitability of any security or investment. This Publication has not been prepared with the aim to take an investor’s particular investment objectives,
financial position or needs into account. It is up to the investor himself to consider whether the Data contained herein this
Publication is appropriate to his needs, financial position and objectives or to seek professional independent advice before making
an investment decision based upon the Data. No investment decision whatsoever may result from solely reading this document. In order
to read and understand the Financial data and/or economic information included in this document, you will need to have knowledge and
experience of financial markets. If this is not the case, please contact your relationship manager. This Publication is prepared by
the Bank and is based on data available to the public and upon information from sources believed to be reliable and accurate, taken from
stock exchanges and third parties. The Bank, including its parent,- subsidiary or affiliate entities, agents, directors, officers,
employees, representatives or suppliers, shall not, directly or indirectly, be liable, in any way, for any: inaccuracies or errors
in or omissions from the Financial data and/or economic information, including but not limited to financial data regardless of the
cause of such or for any investment decision made, action taken, or action not taken of whatever nature in reliance upon any Data
provided herein, nor for any loss or damage, direct or indirect, special or consequential, arising from any use of this Publication
or of its content. This Publication is only valid at the moment of its editing, unless otherwise specified. All Financial data and/or
economic information contained herein can also quickly become out-of- date. All Data is subject to change without notice and may not be
incorporated in any new version of this Publication. The Bank has no obligation to update this Publication upon the availability of new data,
the occurrence of new events and/or other evolutions. Before making an investment decision, the investor must read carefully the terms and
conditions of the documentation relating to the specific products or services. Past performance is no guarantee of future performance.
Products or services described in this Publication may not be available in all countries and may be subject to restrictions in some persons
or in some countries. No part of this Publication may be reproduced, distributed, modified, linked to or used for any public or commercial
purpose without the prior written consent of the Bank. In any case, all Financial data and/or economic information provided on this Publication
are not intended for use by, or distribution to, any person or entity in any jurisdiction or country where such use or distribution would be
contrary to law and/or regulation. If you have obtained this Publication from a source other than the Bank website, be aware that electronic
documentation can be altered subsequent to original distribution.
As economic conditions are subject to change, the information and opinions presented in this outlook are current only as of the date
indicated in the matrix or the publication date. This publication is based on data available to the public and upon information that is
considered as reliable. Even if particular attention has been paid to its content, no guarantee, warranty or representation is given to the
accuracy or completeness thereof. Banque Internationale à Luxembourg cannot be held liable or responsible with respect to the information
expressed herein. This document has been prepared only for information purposes and does not constitute an offer or invitation to make investments.
It is up to investors themselves to consider whether the information contained herein is appropriate to their needs and objectives or to seek advice
before making an investment decision based upon this information. Banque Internationale à Luxembourg accepts no liability whatsoever for any investment
decisions of whatever nature by the user of this publication, which are in any way based on this publication, nor for any loss or damage arising
from any use of this publication or its content. This publication, prepared by Banque Internationale à Luxembourg (BIL), may not be copied or
duplicated in any form whatsoever or redistributed without the prior written consent of BIL 69, route d’Esch ı L-2953 Luxembourg ı
RCS Luxembourg B-6307 ı Tel. +352 4590 6699 ı www.bil.com.
Read more
More
September 30, 2024
BILBoardBILBoard October 2024 – Harvest season
Executive Summary As autumn approached, we saw increased volatility on capital markets. Bad days were swiftly followed by significant rallies, and like the leaves currently...
September 23, 2024
Weekly insightWeekly Investment Insights
Last week, we had the news that the iconic brand Tupperware had filed for bankruptcy. So dominant was the company in its heyday that when...
September 9, 2024
NewsWhat lies behind recent trends in the...
At 6.4%, the Eurozone unemployment rate currently sits at its all-time low, but the picture varies from country to country. Labour market trends will influence...
August 28, 2024
BILBoardBILBoard September 2024 – The stars a...
August brought sky gazers a rare blue supermoon; the next won’t occur until 2037. It also brought what will hopefully prove to be a once-in-a-blue-moon...