This is the surprise of the chef. The ECB announced that, as expected, a lengthening of the duration of its asset purchase program, until December 2017 , a little more than what was expected by some. But above all, it has decided to reduce the amount of asset purchases to € 60 billion, compared to $ 80 billion currently. For the ECB, we cannot speak yet of a ” taper “, that is to say, a gradual reduction in asset purchases, but the ears of the investors, it looks like it already a bit.
The new, in any case, surprised many investors. Few would bet on a reduction in the amount of asset purchases, even if BNP Paribas spoke openly of this possibility to enable the ECB to address the problems of scarcity of securities on the bond markets. “I wouldn’t bet on it” responded immediately Vincent Juvyns at JP Morgan AM. “Objectively, neither the economic recovery nor the inflation does not justify such a measure. “
Error of monetary policy ?
Should we talk about an error of monetary policy ? It is probably too early to tell. In spite of everything, to Bank of America Merrill Lynch, “on a market drivé by the tightening of financial conditions, and no trace of a resumption of inflation,” core “, any reduction of amounts of purchases would be risky.”.
It considers that, if this is not the best of scenarios, this is ” an acceptable scenario, if it is accompanied by a reduction of constraints “, because she believed in the state, ” to reduce purchases by increasing the duration will not help the ECB to break out of the technical constraints of the QE “. Precisely, the ECB has announced in the wake of a relaxation of the terms and conditions, including purchasing securities whose maturity starts to a year, and securities on which the yield is less than its deposit rate. This sounds like the confession of a true difficulty to purchase securities, including germans, on a european bond market, where titles that have come to miss, given its massive purchases. Since the beginning of QE, the ECB has bought 1.212 billion euros.
The euro is weakening
The consequences on the financial markets are quite disparate. The euro first was abruptly flew 1,0875 dollar shortly before 14 h, before returning just as suddenly to near 1,0652 dollar. The decision of the ECB to push to the end of 2017 the planned end of QE increases, in fact, the divergence of monetary policy with the Fed, which should in all likelihood raise its rates on December 14th. Knowing that the ECB is ready again to buy 540 billion in assets for more than originally intended.
On the bond markets, the rates are also very tense shortly after the announcement, the German bund up to 0,456 % and the 10-year French up to 0.87 %. Rates device have especially suffered clearances brutal, the yield on the 10-year Italian regrimpant in particular more than 2 % and the rate in Spanish to more than 1.50 %.
The Paris stock Exchange close of 4.800 points
Finally, the announcement of the ECB has not changed the rebound in the equity markets the past few days. The CAC 40 has even accelerated after 14h, amount up to 4.748 points. He is currently 0.92 % to 4.737 points. The Euro Stoxx 50 progresses of 1.02 %. The ECB expects a little more inflation in 2017 and a little more growth , this is precisely the scenario played by the market since the election of Trump. A scenario that benefits the cyclical values and to the values which were neglected at the expense of growth stocks. This is true : Peugeot wins and 2,84 %, Renault 2,78 % and Société Générale 2,60 %. There are only 6 values in decline on the cac 40 including Klépierre (-0,53 %) and Technip (-0,51 %). The gesture of the ECB can in fact be seen as a sign of confidence in european growth, but also a way to show his confidence despite the failure of the Italian referendum and in spite of the numerous elections that are looming in Europe in 2017.
The market will hear it-t-it of this ear ? For Brendan Mulhern at Newton Group (BNY Mellon), “the continuity of the policies are short-termist and liquidity the ECB will not be able to solve the underlying problems of Italy. A base of assets non-performing combined with the cost structure existing leads to the continued erosion of the balance sheet of the country, and which is visible when one looks at the banks “zombies” in Italian, which are detrimental to the country’s economic potential. Strengthen the Italian banking system with the liquidity of the ECB, while repulsing the attack, does nothing to improve the economic prospects of the economy transalpine, and the possibility of an implosion disorderly in the euro zone over the long term has increased “.
But for now, investors want to rather put the risk in their asset allocation in a context less favourable to the obligations.