“In a dark room you don't run, but you move in small steps”. It is the metaphor used by Draghi to explain the decisions taken yesterday by the ECB, which will allow him to reach the end of his mandate, next December, without ever having raised the cost of money. Little satisfaction, given the situation. This time, writes Bloomberg, for some members of the "dove" board Draghi was judged too conservative by a part of the directorate, who would have liked to cut the forecasts even more radically. But the president of the ECB, aware that he is operating in an extremely delicate political context, has kept to the point, guaranteeing liquidity to a system in serious crisis of confidence, which is reflected "in the various sectors and in various countries, one of these it is certainly Italy”. Without giving "gifts" to the banks: unlike in the past, the loans seem to have been directed more precisely to the real economy. For the banks, which in fact fell throughout Europe yesterday, it will be less easy and less convenient to use loans for the purchase and sale of bonds.
Meanwhile, the weak euro will have to take care of the price lists while waiting for the political framework of the Old Continent to evolve. The single currency yesterday lost 1% against the dollar, to 1,120. This morning the exchange rate slipped to 1,1198, to its lowest level since June 2017. In the space of a few hours, the graphic picture worsened in a worrying way: barring rapid recoveries in the next two days, the objective of the movement is the area 1,10. This too complicates the panorama of price lists, which are set to close the week in decline.
THE FIRST STATE SELL HAS ARRIVED IN SHANGHAI
This morning the shock of the collapse of Chinese exports in February fell on the lists: -20,7%, much worse than forecasts (about -5%), which already discounted the effects of the Lunar New Year.
The Shanghai Stock Exchange felt the blow: -2,9%. In the Chinese list, the People Insurance Group company is suspended due to excessive downgrades due to the rejection of the Sell (sell) arrived by Citic Securities: for the Chinese stock market this is a novelty, as such clear sell recommendations are very rare, having to be approved by the supervisory authorities.
TOKYO DOWN TOO. NEGATIVE STREAK IN WALL STREET
Tokyo (-2%) and Hong Kong (-1,7%) were also down sharply. Down also Australia and South Korea.
The yuan loses positions to 6,72 against the dollar. Safe haven assets, such as the yen, strengthened: the Japanese currency rose to 111,3 against the dollar, from 111,6 at the end. The euro-yen cross is on the fifth consecutive day of decline, at 124,6, on the lows of the last five weeks and close to important graphic thresholds.
Wall Street is also weak, today focused on employment data. The Dow Jones index fell by 0,78%, the S%P 500 -0,81% down in seven sessions out of the last eight, Nasdaq -1,13%.
The Dow Jones Transportation Index, a widely followed gauge of economic health, fell for the tenth day in a row, the longest negative streak since February 2009. Fedex fell 3% after Citi downgrade.
Oil was weak this morning: Brent traded at 65 dollars (-81 cents), Wti at 49 (-56,28 cents).
ECB: EU GROWTH AT ONLY 1,1%, INFLATION TOWARDS 1,2%
New liquidity injection through a third Tltro loan programme, rates unchanged no longer until the summer but for the whole of 2019, a drastic cut in forecasts on GDP and inflation in the eurozone. Here is a summary of the measures taken yesterday, unanimously, by the ECB to stem the decline of the economy.
The hypothesis of an increase in the cost of money in the coming months has been cleared of the field: rates will remain at current levels (main rate at 0%, that on marginal loans at 0,25% and that on deposits at -0,40 %) until the end of the year.
Furthermore, even after the first hike, profits from bond purchases during QE will continue to be reinvested for a considerable period of time.
The cut in growth estimates is robust and, given its size, surprising: according to the latest estimates, the GDP of the euro area will rise by only 1,1%, against the 1,7% previously estimated. For inflation, it went from +1,6% to +1,2%.
NEW RULES FOR THE TLTRO
Faced with these risks, at the moment in any case not such as to lead to a recession, the Central Bank responds with seven quarterly financing operations, the first one next September, the last one in March 2021 with a duration of two years. The rate will be indexed to the refinancing rate. Applicants can obtain up to 30% of the total jobs at the end of 2019.
The explicit objective of the auctions will be the funding of the banks to make credit flow to businesses and "minimize the risk" that the funds will be used as in the past to purchase sovereign bonds and speculate on the difference in yields.
MILAN RISES, THEN BRAKS
Following the publication of the press release, the Milan Stock Exchange started to rise, reaching 21.000 in the early afternoon, the index's highest since September. But in the last two hours of trading, the trend reversed: the session thus ended down by 0,7%, at 20.697 points.
Similar script, but with a less negative ending, for the other price lists of the Old Continent: the initial relief for the expansive measures was replaced by concern for the picture of the real economy painted by Draghi. The reaction was the prevalence of red: Frankfurt -0,56%; Paris -0,39%; Madrid -0,53%; London -0,49%.
The euro weakened to 1,122 against the dollar, -0,7%.
THE SPREAD SLIDES TO 240 POINTS
The impact on the bond markets is noticeable. The 0,07-year Bund once again approached the negative yield threshold: 2016%, down by six basis points, the lowest since October XNUMX.
The demand for Italian paper is on the rise. The most significant change concerns two-year securities, which have dropped to a yield of 0,13% (-13 points). The ten-year BTP strengthened to 2,49% (-8 basis points).
The spread fell, dropping to a minimum of 240 basis points and then closing at 243, a level not seen for five weeks. The response of price lists to the decisions was mixed: negative for banks, downturn for industry, positive for utilities.
LITTLE "GENEROUS" LOANS, BANKS IN RED
To explain the reaction of the banks, despite benefiting from the inflow of TLTRO funds, it is necessary to consider that low rates put pressure on the profitability of the institutions. As designed, the experts add, the measures do not bring many benefits to banks in terms of arbitrage between the rates at which liquidity is provided and that obtainable from a low-risk investment.
The result is that the Stoxx index of European banks reacted with a drop of 3,3%. In Milan, Ubi Banca (-4,98%) and Banco Bpm (-4%) fell above all. Down the Big: Unicredit -3%, Intesa -2,2%.
UTILITIES FLY, BRAKING THE CAR
On the other hand, utilities, considered as quasi-bonds, rose, given their high level of debt. The EuroStoxx Utility index gains 1,8%. In the Italian price list, Enel (+1,9%), Snam (+1,7%), Terna (+1,8%), A2A (+2,2%) reached the maximum for the year or for the period and Acea (+2,7%).
The signs of uncertainty on the economic front relaunched by the ECB's diagnosis translated into a slowdown in industrialists, starting with the car (-2,14% the Stoxx for the sector). Fiat Chrysler falls by 2,28%, Cnh Industrial -2,4%.
Erg -3,13% after results that fell sharply compared to expectations, but partially recovered after the conference call with analysts.
As Roma -5,52% after elimination from the Champions League.
Cerved +1,3% following Advent's expression of interest.
Italmobiliare also did well (+3,54%): Equita Sim confirmed the buy decision by raising the target price to 26 euros from 24,3.
