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The minin union. It is a sign of weakness that, faced with expectations, the market immediately sets the price through the worst interpretive proxy: the end of alternatives present in the mythological “Toolbox” of the ECB, after eight years of almost uninterrupted QE.
And for once it was not the Stock Exchange with its Pavlovian reflection that voted the decisions of the ECB, before Christine Lagarde appeared at the press conference: the change euro dollar, skyrocketed after the board’s release was posted, as the graph shows.
Source: Bloomberg
When, clearly, an expansive surplus capable of surprising should have triggered opposite dynamic. In fact, the European Central Bank has decided to extend another 500 billion the amount available for the pandemic purchase program (Pepp) and extend its duration until March 2022, extending it beyond the consensus that provided for the deadline until December 31, 2021. Then, the strategic choice of recalibrate the Tltro rods for the long-term financing of the credit system, extending its duration by 12 months and adding three operations during the next year. Translated, the European rush to anticipate bank support within the ESM reform is not only prudential in nature, but strictly emergency: the fear is that of an imminent banking crisis linked to the second wave of the pandemic and the consequences on the real economy of the new blockade regimes underway in most of Europe. And that, above all, the German locomotive has already announced that it will be reinforced and tightened immediately after Christmas.
Source: Pwm / Bce
This graph clearly shows the three scenarios that the ECB board had on the table: the maintenance of the current regime, the definite expansion of a modest recovery and that of a greater election. Probably convinced that Latin wisdom always prevails, in Frankfurt they opted for the logic of in the center of power and they chose the median scenario among the first two, with which the total amount of the so-called envelope from Pepp is “only” 1.85 billion available. Formally, what the market expected. Therefore, according to the law, nothing to disappoint and lead to negative reactions.
Although only formally. Because that minimum wage was and at price but not from now on, but for at least a month. Meanwhile, the variables that came into play went far beyond the mere narrative of macro optimism tied to the hypothesis of mass vaccinations in record time.
Forced closures in Europe and the explosion of new cases in the United States have countered the euphoria of the Pfizer effect and have convinced, at least silently and intimately, the market that the ECB would have gone further. In short, it would have really blurred the bazooka and not just the Kalashnikov. Immediately. At its heart, investors expected the third scenario: that of a larger recovery, that of the expansion of the envelope to 2.6 trillion positions. Instead, the ECB kept the profile low. And, in fact, he worked at the bank with the German fiscal policy endorsed by Angela Merkel and her moral persuasion against the Bundesbank, in order to silence his discontent at the risk of institutionalization of the exceptions to the basic criteria contained in the Pepp ( capital key, limit per issuer at 33% and acceptance of Greek debt as collateral) and that for the German Central Bank it should, instead, remain confined to the limited emergency time frame.
Source: ECB
Source: ECB
These two graphs show how, thanks to the unprecedented debt issuance plan announced by Berlin for 2021 (180,000 million euros, double the forecast), the ECB has been able to count on a Implicit widening of the Bund’s audience to monetize, a context that carries with it the key to our own survival in terms of financing in the public accounts market. In fact, the continuous and constant repeal of the cardinal principles of key capital and a limit of 33% per issuer.
The images speak for themselves: without the commitment of Germany At the level of extra-emissions for next year, Pepp not only could not have passed June 30, 2021 but, to do so, he would have had to immediately lower the weekly amount of purchases. Translated, less firepower against speculative attacks on only artificially compressed sovereign debts like ours and those of Spain, Portugal and Greece.
In summary, Angela Merkel – also in view of the final and deadly appointment of her EU presidency, the European Council inaugurated today and dedicated to the Recovery Fund – noted the moment with style “go or break” in which the pandemic it has precipitated the eurozone and imposed a mega-budget change in the Bundestag. In fact, it became Bund issues for 2021 as to guarantee its own life and absolute operational independence for Pepp (with potential daily purchases higher than the current ones) even until June 2022. This without the ECB having to do – de facto – nothing but your homework.
What explanation? Wanting to be optimistic, Christine Lagarde may have jumped assistance guaranteed by Berlin before the end of his presidential semester and put the bare minimum in place, aware that the real problems for the real European economy will come from the second quarter of 2021 and therefore happy to keep those extra hundreds of billions that the market was already pricing. available today as spring ready to wear, as this chart shows.
Source: ECB / Jefferies
However, it continues to be extremely worrying data for our country. Angela Merkel’s dramatic appeal to her compatriots launched by the Bundestag runs the risk of weighing much more than the words or actions of Christine Lagarde. For the simple fact that, in March, the real italian economy will find itself having to deal with the perfect rain storm from the German production block in the first quarter – prices as set by the full lockdown promised by the Chancellery after the holidays – which will weigh on operations and profits of all industries components and industrial subcontracting in northern Italy and the end of the moratorium on layoffs.
In fact, a social and occupational time bomb which the Chancellor unleashed with her open-hearted speech, but also a red flag warning for the banking system, as that kind of combination immediately translates into anticipation of an exponential and higher increase in bad debts.
Of course, at the spread level, what the ECB has put in place today could be enough to guarantee other quarters of financing costs more than affordable for the Treasury (also in light of the reinvestment of securities by Frankfurt until late 2023) and book entries. without penalizing the Italian credit institutions themselves, which have approximately 520 billion shares.
But a country and its economy do not live only on spreads. Rather. Not surprisingly, the area in which the ECB intervened greater incisiveness was that of the temples of Tltro. And, at the same time, in Europe, the accelerator of bank support was pressed within the new Me. And if the conditions under which banks will be able to access loans already appear in themselves as a pre-alarm situation (rate at -1%, resources up to 55% and no more than 50%, of the stock of loans, extension of the collateral expansion through June 2022, as well as four pandemic Peltro liquidity auctions in 2021), the big picture appears to be one of visual navigation. It is characterized by a discouraging fact: if so far Europe has withstood the impact, it owes it to the German presidency and Angela Merkel. Which, however, exactly like the ECB acquisitions, will not last (politically) forever.
The bell has sounded for our country, officially. From next March recess ends. And you really risk starting a season that will require tears and blood. In addition to a government worthy of the name.
