Sign up for our free newsletter to receive weekly news from BONDWorld
Click here to register for your free copy
For professional investors and advisers only
– As expected, the ECB left interest rates unchanged, as “incoming information confirmed the assessment which led to the cut in interest rates in early May”: monthly surveys have recovered from depressed levels, and inflation has risen back from its April lows. Draghi explained that a cut was not even discussed, as changes to the outlook in the last month were not enough, but added that the ECB “stands ready to act” and will “monitor very closely” all economic developments. The ECB continues to forecast a recovery “later in the year”, driven by exports and fuelled by accommodative monetary policy, improving money market conditions, and higher purchasing power as a result of lower inflation. The ECB staff’s new estimates point to lower economic growth in 2013 (-0.6% from -0.5% previously).
Surprisingly, 2014 growth has been revised upwards, to +1.1% from +1.0%. The inflation estimate has been lowered by one tenth for 2013, to 1.4%, and left unchanged at 1.3% in 2014. In the ECB’s view, risks to growth are still skewed to the downside, whereas risks to inflation are balanced in the medium term. During the press conference, Draghi said that he is not worried by the decline in consumer prices excluding energy and food components, as this is tied to the drop in administered prices and in any case limited to only few categories of goods.
– Therefore, the statement and the new ECB forecasts leave open the door for a refi cut in July or August, should the data continue to disappoint.
– Commenting on the possibility of a deposit rate cut, Draghi repeated what he had said a month ago: “the ECB is technically ready for a negative deposit rate and to manage the unintentional consequences of such a move”. We stick to our view that a deposit rate cut will only come in the wake of a refi rate cut, and that in any case the decision on whether or not to implement it will depend on the progress made in reducing market fragmentation. On this aspect, Draghi indicated that TARGET II balances outlined a further improvement in May, when they returned to December 2011 levels.
– Draghi, in response to a question posed by journalist, clarified that the expression “monetary policy will stay accommodative for as long as needed” represents a sort of formal guidance, and that such guidance was qualified in May with the indication that full allotment will stay in place at least until July 2014.
– As regards other non-standard measures, Draghi indicated that the ECB has “on the shelf” further medium-long term refinancing operations, collateral policy, possibly with the extension of the collateral pool to securitization of loans to small and medium size enterprises, revision of haircuts, but that for the time being it has not deemed it appropriate to act. Draghi specified that the measures would have an impact on the cost of funding for banks, but they would not, we add, free up risk capital. The joint plan of action with the EIB to revive the ABS market and to foster credit to small and medium size enterprises is still under assessment. Draghi admitted the measure will not be implemented in the short term due to operational hurdled tied to regulatory discrepancies within the euro area.
Analyst Certification
The financial analysts who prepared this report, and whose names and roles appear on the first page, certify that: (1) The views expressed on companies mentioned herein accurately reflect independent, fair and balanced personal views; (2) No direct or indirect compensation has been or will be received in exchange for any views expressed. Specific disclosures: The analysts who prepared this report do not receive bonuses, salaries, or any other form of compensation that is based upon specific investment banking transactions.
Important Disclosures
This research has been prepared by Intesa Sanpaolo S.p.A. and distributed by Banca IMI S.p.A. Milan, Banca IMI SpA-London Branch (a member of the London Stock Exchange) and Banca IMI Securities Corp (a member of the NYSE and NASD). Intesa Sanpaolo S.p.A. accepts full responsibility for the contents of this report. Please also note that Intesa Sanpaolo S.p.A. reserves the right to issue this document to its own clients. Banca IMI S.p.A. and Intesa Sanpaolo S.p.A. are both part of the Gruppo Intesa Sanpaolo. Intesa Sanpaolo S.p.A. and Banca IMI S.p.A. are both authorised by the Banca d’Italia, are both regulated by the Financial Services Authority in the conduct of designated investment business in the UK and by the SEC for the conduct of US business.
Opinions and estimates in this research are as at the date of this material and are subject to change without notice to the recipient. Information and opinions have been obtained from sources believed to be reliable, but no representation or warranty is made as to their accuracy or correctness. Past performance is not a guarantee of future results. The investments and strategies discussed in this research may not be suitable for all investors. If you are in any doubt you should consult your investment advisor.
This report has been prepared solely for information purposes and is not intended as an offer or solicitation with respect to the purchase or sale of any financial products. It should not be regarded as a substitute for the exercise of the recipient’s own judgement.
No Intesa Sanpaolo S.p.A. or Banca IMI S.p.A. entities accept any liability whatsoever for any direct, consequential or indirect loss arising from any use of material contained in this report.
This document may only be reproduced or published together with the name of Intesa Sanpaolo S.p.A. and Banca IMI S.p.A.. Intesa Sanpaolo S.p.A. and Banca IMI S.p.A. have in place a Joint Conflicts Management Policy for managing effectively the conflicts of interest which might affect the impartiality of all investment research which is held out, or where it is reasonable for the user to rely on the research, as being an impartial assessment of the value or prospects of its subject matter. A copy of this Policy is available to the recipient of this research upon making a written request to the Compliance Officer, Intesa Sanpaolo S.p.A., 90 Queen Street, London EC4N 1SA.
Intesa Sanpaolo S.p.A. has formalised a set of principles and procedures for dealing with conflicts of interest (“Research Policy”). The Research Policy is clearly explained in the relevant section of Banca IMI’s web site (www.bancaimi.com).
Member companies of the Intesa Sanpaolo Group, or their directors and/or representatives and/or employees and/or members of their households, may have a long or short position in any securities mentioned at any time, and may make a purchase and/or sale, or offer to make a purchase and/or sale, of any of the securities from time to time in the open market or otherwise. Intesa Sanpaolo S.p.A. issues and circulates research to Qualified Institutional Investors in the USA only through Banca IMI Securities Corp., 245 Park Avenue, 35th floor, 10167 New York, NY,USA, Tel: (1) 212 326 1230. Residents in Italy: This document is intended for distribution only to professional investors as defined in art.31, Consob Regulation no. 11522 of 1.07.1998 either as a printed document and/or in electronic form. Person and residents in the UK: This document is not for distribution in the United Kingdom to persons who would be defined as private customers under rules of the FSA.
US persons: This document is intended for distribution in the United States only to Qualified Institutional Investors as defined in Rule 144a of the Securities Act of 1933. US Customers wishing to effect a transaction should do so only by contacting a representative at Banca IMI Securities Corp. in the US (see contact details above).
Valuation Methodology
Trading Ideas are based on the market’s expectations, investors’ positioning and technical, quantitative or qualitative aspects. They take into account the key macro and market events and to what extent they have already been discounted in yields and/or market spreads. They are also based on events which are expected to affect the market trend in terms of yields and/or spreads in the short-medium term. The Trading Ideas may refer to both cash and derivative instruments and indicate a precise target or yield range or a yield spread between different market curves or different maturities on the same curve. The relative valuations may be in terms of yield, asset swap spreads or benchmark spreads.
Coverage Policy And Frequency Of Research Reports
Intesa Sanpaolo S.p.A. trading ideas are made in both a very short time horizon (the current day or subsequent days) or in a horizon ranging from one week to three months, in conjunction with any exceptional event that affects the issuer’s operations. In the case of a short note, we advise investors to refer to the most recent report published by Intesa Sanpaolo S.p.A’s Research Department for a full analysis of valuation methodology, earnings assumptions and risks. Research is available on IMI’s web site (www.bancaimi.com) or by contacting your sales representative.
Source: BONDWorld – Intesa Sanpaolo – Research Department
Newsletter
