Free songs

Deflation Fear Spurs Talk of More ECB QE – Bloomberg

From Deborah L Hyde at Bloomberg:

 

Market expectations for euro-area inflation have fallen back toward pre-ECB QE levels, sparking talk among analysts that Europe’s rate-setters may have to ease further.

 

Barclays (Cagdas Aksu)

- 5y5y fwd breakevens have cheapened globally over the past few weeks, and sensitivity to the oil price has increased.
- Oil’s fall will likely lead the ECB to lower its inflation projections on Sept. 3 staff projections, especially with EUR/USD struggling to cheapen.
- All of which means the bullish bias in EUR rates is unlikely to disappear as the ECB has little choice but to remain accommodative, if not increase its accommodation at some point.

 

JPMorgan (Greg Fuzesi)

- The ECB’s tolerance of downside surprises is low and it may step-up rhetoric.
- The ECB had started to go down this route in response to the Greek crisis and it may not take much for.

- It to say that an extension of QE beyond Sept 2016 is becoming more likely.
- If developments point to economic growth weakening as well, the ECB could move more quickly and consider stepping up the monthly pace of its QE purchases.

 

ING (Petr Krpata)

- The ECB will probably downgrade the CPI forecast given the fall in oil price.
- This will primarily cement the view that QE should be fully implemented until Sept.; for them to increase the program at this juncture, things would have to get really bad.
- Rising probability the ECB will implement QE fully isn’t enough to offset the repricing of Fed’s outlook, hence the EUR/USD rally.

 

Citigroup (Harvinder Sian)

- The cumulative impact on Europe CPI of a 10% RMB devaluation in 3Q 2015 is fairly substantial at 0.7% and pushes in the direction of lower for longer, at a minimum, but also more ECB easing
- Linkers can find few buyers in this environment and the miss in the market’s expected inflation versus – ECB projections is now too large for ECB credibility
- We think the ECB will not meet its inflation goal by Sept. 2016 and there are technical reasons why QE – will be extended and tapered until 2Q 2017
- ECB QE2 is also feasible.

 

Popular Party Kept the Lead in July Poll while Podemos Remained in Third Position

July’s Metroscopia poll for El País, published on Sunday, shows that Popular Party (PP) kept the lead (two consecutive month) with 23.0% of support but down from 24.5% in June.

 

In the meantime, the Spanish Socialist Party (PSOE)’s estimated support reached 22.5%, down from 23.0% in June, but still above Podemos’ score.

 

As a matter of fact, the left wing party remained in third position with 21.5% estimated votes for the second consecutive time while in the meantime, Ciudadanos’ support rose from 13.5% to 15.0%.

 

In the coming months, traditional parties seem in better place to benefit from the ongoing recovery in Spain while Podemos is likely to be hit by Greek developments as Syriza’ decisions put the country into deeper recession.

 

 

In Greece, it’s not a “bank walk” but really a “bank run”

After midnight in Athens, Greek Prime Minister Alexis Tsipras called a referendum on July 5 on whether he should accept the latest demands of its creditors. In the meantime, Greek officials announced that banks will remain open on Monday and they don’t plan Capital Controls.

 

The only problem is that people know the referendum increases the probability of a Grexit in coming weeks as suggested by the latest quotes on Betfair (see below).

 

 

In this context, according to different sources on tweeter, Greek people really run to ATMs in order to withdraw their banking deposits. As a consequence, if the ECB is not ready to offer more liquidity to Greek banks, a major crisis including bankruptcies, is not excluded.
 

 

 

Investors Should Revise their Liftoff Expectations as FOMC Remains on Track to Raise Rates this Year

On Friday, San Francisco Fed President Williams (dove, FOMC voter) and Cleveland Fed President Mester (moderate, FOMC non-voter) both said they expect the FOMC to begin liftoff at some point later this year.

 

According to CNBC, San Francisco Federal Reserve President John Williams believes the U.S. central bank should raise rates twice this year if economic data meet expectations. In the meantime, according to WSJ, Federal Reserve Bank of Cleveland President Loretta Mester said raising rates right now wouldn’t be a problem for the economy as a whole.

 

These two statements confirm that most of FOMC members seem ready to raise rates this year. The fact is that the median dot plot for 2015 remained at 0.625% during the June FOMC meeting. It suggests that the committee expects at least two hike in 2015 despite that the World Bank joined the IMF in urging the Federal Reserve to hold off raising rates until 2016.

 

As suggested by the chart below, the gap between investors’ expectations and FOMC projections remains huge. But if data keeps on improving in coming weeks and Grexit is avoided, investors should revise upward their expectations concerning the pace with which the FOMC will tighten its policy.