Honor to Draghi's merit, who once again managed to positively surprise the markets. The European Central Bank announced the cut of the reference rate from 0,1% to 0,05%, in June it had been brought to 0,15% from 0,25%. To further discourage banks from leaving money parked in Frankfurt, the overnight deposit rate was further reduced to -0,2% from -0,1%. Furthermore, Draghi announced the launch, starting from 14 October, of a program for the purchase of ABS and covered bonds capable of bringing inflation back to around 2%, the long-term target of the central institution: in August the inflation fell by 0,3%.
The answer was not long in coming: the euro depreciated drastically, falling to 1,2920 against the dollar, from 1,315 at yesterday's close. Below the 1,30 threshold for the first time since July 2013. The BTP yield dropped drastically to 2,31%, a new historic low. The spread narrowed to 139, with a drop of 11 basis points. Short-term bond yields in Germany, Austria, the Netherlands and France slipped into negative territory. The gap between German and US short-term bonds widened to 60 points, the highest since 2007.
The response of the European Stock Exchanges was also immediate. In Piazza Affari, the FtseMib index rose by 2,8% to 21. Rises above 1% also on the other stock exchanges in Euroland: Madrid +1,96%, Paris +1,6%, Frankfurt +1% . Flat London +0,06%. The euphoria of the European markets had a modest echo on the lists in Asia and the USA.
The Wall Street indexes moved little: S&P 500 -0,15%, Dow Jones -0,05% and Nasdaq -0,22%. Today a very important data will be released: the census of the new payrolls for August. A very strong result would give the hawks more breathing room ahead of the Fed's monetary committee meeting scheduled for Sept. 17, which is making Wall Street jittery.
Tokyo and Shanghai close the week on positive ground. Hong Kong -0,30% falls.
GOOD FOR STOCKS, BAD FOR BONDS
Only 10% of operators, according to the Bloomberg panel, had expected such a robust and "revolutionary" new package of measures from the ECB. Hence a rain of comments from analysts and operators, to interpret the economic situation in the light of the news.
“What Draghi has done is good for stocks, not for bonds,” said Appaloosa's David Tepper, one of the best-performing managers in the past two years. “The message – he continued – is clear: Draghi wants to restart growth at any cost. A boon for the stock exchanges, but at this point it is obvious that we are heading towards the bursting of the bond bubble".
The ECB president made it clear that after yesterday's decisions there is no more room for further cuts. But for Giuseppe Sersale, strategist of Anthilia, yesterday's measures in fact already represent Quantitative Easing: "The purchase programme, together with the Tltros, should produce a robust increase in the ECB's assets (Draghi said he expects it to return to 2012 levels, i.e. rise by approximately 1 trillion euros). The addition of covered bonds will allow for a significant liquidity injection into the system. Let us not forget that in 2008 the Fed also began its expansionary maneuver with the purchase of mortgages”.
Alessandro Fugnoli of Kairos instead dwells on the positive repercussions of the fall of the euro which, in his opinion, solves many potentially explosive problems”: maintaining Italy within its perimeter; the supply of oxygen for the other seriously ill, France; the possible postponement of Qe, the adoption of which will trigger endless controversies and legal battles in Germany.
MESSINA(INTESA): WE ARE THE BEST BANK IN EUROPE
In Piazza Affari, bank stocks led the race. Logical outcome, given the proceedings adopted in Frankfurt: credit institutions will be able to borrow at 0.15%, grant loans to the private sector, securitize them in some way and sell them to the ECB with a margin. Not surprisingly, the banking sector has recovered more than 3% on average.
The rally was led by Intesa (+5,58%). The managing director Carlo Messina, managing director, with regard to the results of the Asset quality review which will be announced on October 17th said: “We will be the winners of the asset quality review; I am convinced that we will be the best bank in Europe”.
Unicredit +5%, MontePaschi +4,6%, Banco Popolare +4,4%, Pop.Milano +4,1% also stood out. Among other financial stocks, Generali gained 2,3%, Mediolanum +2,3%, Azimut +4,8%. Soul Snatch +8,56%.
RATES FALL, NEW OXYGEN FOR UTILITIES
The decline in the cost of money had an immediate effect on the leading regulated utilities, energy and services. Enel gains 2,61%. Francesco Starace, CEO, said that Enel will decide within the year how to make the Spanish subsidiary Endesa more attractive and will pay the extraordinary dividend in 2014 linked to the sale of activities in South America. The drop in rates favors the companies with the greatest financial leverage: Atlantia +2,9%. The Oil sector also performed well: Eni grew by 1,87%, only neglected by Saipem which lost 0,45%.
JEEP SALES TO THE SKY, FIAT PLACES 500 MILLION BONDS
Fiat also stands out +1,39% in the wake of the rise in car registrations in the USA (Chrysler sales have risen for 53 consecutive months) and the spectacular boom in Jeep sales in Great Britain in August (+329,27%). Requests for withdrawal have stopped at 463 million euros, under the ceiling of 500 million: the Turin-based company can now proceed expeditiously with the merger with Chrysler.
Finally, Lingotto placed 500 million euros of a reopening of its July 2022 bond, coupon 4,75%, receiving requests for over one billion, from over 175 investors. The issue was priced at 103,265 for a final yield of 4,25%, which corresponds to a premium of 338,3 basis points over the midswap rate.
MEDIASET-TELECOM IN THE LIGHT AGAIN
Jump by Mediaset (+5,6%) after the hypothesis of a merger with Telecom Italia has been revived +1,92%. In any case, we should start talking about it after the Vivendi operation in Brazil, which will be finalized in mid-2015. The landing of Vincent Bolloré in the Italian CTs will not change Intesa's plans: the bank, the Messina CEO confirmed, intends to sell all equity investments, including you, as envisaged in the strategic plan.
Outstanding among the luxury stocks are Moncler +1,08% and Ferragamo +1,47%.
Italcementi gained 2,09% to 5,87 euros, recovering towards the end, after Bernstein cut the target price from 7,3 to 6,9 euros (outperform rating confirmed), raising the target price from 15,7 to 16 euros Buzzi Unicem target price +1,19% (outperform rating).
