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15 Apr 2015
What will Draghi say on this environment of negative yields? - BTMU
FXStreet (Barcelona) - With ECB set to meet today and keep policy intact, Derek Halpenny, European Head of GMR at Bank of Tokyo-Mitsubishi UFJ notes that there are likely to be plenty of questions that will focus primarily on the growing environment of negative yields in government debt markets and of course on Greece.
Key Quotes
“We suspect President Draghi’s tone will be somewhat more upbeat – certainly the data since the last meeting in early March has improved, although the lift to inflation expectations has been modest.”
“…the ECB Lending Survey, which was released yesterday and did confirm both an increased willingness to lend to non-financial corporations and increased demand for loans as well. President Draghi will no doubt point to both the AQR/Stress tests and QE as policies that are now beginning to play a role in improving credit conditions.”
“But one key area will be negative yields and expect more questions on the ECB’s ability to purchase the required quantity of paper and whether the program may end early if the data were to improve more quickly than expected.”
“ECB Executive Board Member Mersch did state on 8th April that the program was flexible and could end early or indeed could be extended beyond September 2016. Will President Draghi confirm the potential for an early exit?”
“We suspect though that at this stage the focus will very much be on Draghi emphasising the ECB’s determination to carry through its program in full and stressing the ample pool of available assets to purchase.”
“Finally, Draghi may also be asked about the euro decline. Given the more vocal criticism from the US Treasury (semi-annual report) about over-dependence on monetary policy, the speed of euro decline versus the dollar could be raised given the current EUR/USD low was recorded since the last meeting.”
Key Quotes
“We suspect President Draghi’s tone will be somewhat more upbeat – certainly the data since the last meeting in early March has improved, although the lift to inflation expectations has been modest.”
“…the ECB Lending Survey, which was released yesterday and did confirm both an increased willingness to lend to non-financial corporations and increased demand for loans as well. President Draghi will no doubt point to both the AQR/Stress tests and QE as policies that are now beginning to play a role in improving credit conditions.”
“But one key area will be negative yields and expect more questions on the ECB’s ability to purchase the required quantity of paper and whether the program may end early if the data were to improve more quickly than expected.”
“ECB Executive Board Member Mersch did state on 8th April that the program was flexible and could end early or indeed could be extended beyond September 2016. Will President Draghi confirm the potential for an early exit?”
“We suspect though that at this stage the focus will very much be on Draghi emphasising the ECB’s determination to carry through its program in full and stressing the ample pool of available assets to purchase.”
“Finally, Draghi may also be asked about the euro decline. Given the more vocal criticism from the US Treasury (semi-annual report) about over-dependence on monetary policy, the speed of euro decline versus the dollar could be raised given the current EUR/USD low was recorded since the last meeting.”