ECB: 0QE really boosting any growth? - Socgen

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Oct 27, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Guatemala) - QE does not appear to be doing anything to boost loan growth in Europe.

    We don't know what would have happened to bank lending or economic activity if the ECB hadn't embarked on its bond-buying programme but ‘QE' has supported peripheral bond markets, narrowing spreads and preventing a crisis of confidence, and it seems have supported equity and increasingly, property markets across Europe. But it hasn't supported lending. QE + the shift to negative interest rates meanwhile, have as a combination weakened the Euro, which has hopefully helped exports (though a 9% year-to-date fall against the dollar is only a 5 ½% fall on a trade weighted basis).

    How low can Bunds go?

    When 10-year Bund yields jumped from 8bp in mid-April to 98bp in mid-June, the general view was that the fall towards zero had been overdone. Since then, yields have fallen steadily but they're lagging the front end of the curve. 1y/1y swap rates fell into negative territory after last week's ECB meeting and 2y/2y rates are within 5bp of their April low. The 5y/5y forward rate, just below 1 ½%, is still over 70bp higher than it was in April.

    The correlation between Bunds and Treasuries is such that the Bund can't fall too far independently of the US market, but even so, the renewed softness in commodity prices, slowing credit growth and the prospect of even lower for rates for even longer, are just dragging yields down. I'm not betting on Bund yields bouncing any time soon."
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