Daily Insight ECB report cools QE hopes
Group Economics Macro & Financial Markets Research Nick Kounis & Maritza Cabezas +31 20 343 5616
21 October 2015 • • •
Robust ECB bank lending survey leads to some scaling back of QE hopes… …report was more mixed than headlines suggest, and further ECB stimulus still looks likely No hints from Fed officials on rate hike, while markets remain unconvinced of rate hike this year
ECB Bank Lending Survey holds back equities and bonds
Demand for eurozone bank loans (ECB survey of banks)
A relatively robust ECB Bank Lending Survey triggered some
Net balance
scaling back of expectations that the central bank would step up its QE programme in the coming months. This led to a typical reversal of the QE-trade, with Bund and equity prices falling in unison and the euro firming. However, the moves were not really large.
60 40 20 0 -20
BLS report was robust, but some soft spots The ECB’s Bank Lending Survey was certainly consistent with an ongoing economic recovery, which is in line with our base case scenario. However, there were also some soft spots. Granted banks continued to ease credit standards on loans to companies
-40 -60 -80 03 04 05 06 07 08 09 10 11 12 13 14 15 Companies
Mortgages
Consumer
(-4 in Q3 vs -3 in Q2) and on consumer credit (-3 in Q3 vs -4 in Q2), but they tightened credit standards on mortgages (+5 vs -9).
Source: ECB and ABN AMRO Group Economics
Demand for loans rising, but at a slower pace At the same time, although corporate demand for loans accelerated, the pace slowed for mortgages and consumer credit, albeit from high levels (see chart). That might be consistent with some easing of the momentum in the pace of economic recovery. The rising demand for bank loans from companies was partly driven by investment needs, inventories and working capital, but also some other factors, such as the low level of interest rates, debt refinancing and M&A activity.
No hints from Fed officials on rate hike in latest speeches Fed officials are split, with some putting more weight on the consequences of too early tightening, while others are more concerned about being behind the curve. The most recent interventions from Fed officials are not giving a clearer picture. The President of the Federal Reserve Bank of San Francisco, John Williams, declined to say when he saw the appropriate timing to begin interest rate normalization. He mentioned that ‘with good arguments for and against raising rates’, the decision remained a
QE seen as helping to ease credit standards The ECB also added a special question on the impact of QE. The additional liquidity was reported to have partly been used to step
‘close call’ for him. Meanwhile, Fed Chair Yellen and Governor Powell shed no light on policy in remarks on Tuesday. All of a sudden it has gone remarkably quiet at the Fed.
up bank loans, while it also had a net easing effect on credit standards.
Markets still unconvinced of rate hike this year The Fed has two scheduled policy meetings this year, in late
A stepping up of QE still looks likely
October and mid- December. Futures markets now see a 6%
Despite signs that the economic recovery is continuing, we still
probability of a rate hike in October and a 32% probability that the
think that the ECB will step up QE (most likely in December) given
Fed will move in December. Soft retail and labour market reports
the likelihood that inflation will otherwise under-shoot its inflation
are not giving markets the confidence they would want to
target over the medium term. The ECB’s confidence that QE is
speculate on a rate hike this year. Meanwhile, housing data
having a positive impact, could also be seen as showing that this is
released on Tuesday are pointing to a moderate recovery of the
a tool that is working, and therefore encourage the central bank to
housing market. Housing starts were stronger than expected in
continue to use it.
September (6.5% was -1.7%), after two consecutive declines in Q3. Building permits were, however, subdued (-5% after 2.7%).