The ECB Governing Council again left monetary policy unchanged when it met on Thursday. It looks like the ECB is buying time to communicate to markets that it’s going to wind down its bond buying programme, albeit in an orderly fashion.
ECB intervention has pushed European corporate bond yields down to unrealistic levels. It may therefore be a good idea to buy some sterling credit, regardless of how the Brexit saga will play out.
The European Central Bank decided to stick rather than twist today as it announced the deposit rate has been held at -0.4%, the refinancing rate held at zero, and the details of its €80bn per month quantitative easing programme are unchanged.
ECB president Mario Draghi conspicuously avoided the B-word when he held a speech in Portugal last week. This may well be because he has yet to find an answer to the problems the vote has thrown up with regards to the execution of the central bank’s asset purchase programme.
The decision by the ECB to include investment-grade corporate bonds in its asset purchasing programme has led to a spike in issuance and to yields edging even lower. While this market response was anticipated by the central bank, its stimulus efforts threaten the viability of the asset class in the longer term .
Janet Yellen’s Economic Club of New York speech provided a timely reminder that the Fed continues to dictate markets. This contrasts with the waning credibility of her counterparts in Europe and Japan.
The ECB’s latest salvo in the fight against the prospect of deflation was initially met positively by markets. But, a lack of a clear message that the Bank will cut rates further from here sent markets falling again almost as quickly.
It is not every day that the Bank of International Settlements warns that confidence in central bank omnipotence has begun to falter, but when it does it is worth a read.
Equities markets around the world climbed sharply on news of Japan’s surprise decision to cut interest rates into negative territory.
I am out of ideas. Over the past few weeks a growing sense of déjà vu has crept into everything I have tried to write.
ECB President Mario Draghi disappointed markets on Thursday. While the Bank delivered a 10 basis point cut to the deposit rate to an historic -0.3%, and extended the deadline of its asset purchase programme by six months, it kept the main refinancing and marginal lending rates steady at 5 and 30 basis points respectively.
Fund selectors in Finland are adopting the contradictory stance observed quite frequently these days with investors in Europe: they want the Fed to hike rates at the earliest possible occasion, while they would welcome a move by the ECB to extend its quantitative easing programme.
