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8th September 2019

To the ECB, the market expects

MARKET CLOSE:
iTraxx Main

47.1bp, -1bp

iTraxx X-Over

238.5bp, -6.6bp

🇩🇪 10 Yr Bund

-0.64%, -4bp

iBoxx Corp IG

B+123.3bp, +1bp

iBoxx Corp HY

B+417bp, +4bp

🇺🇸 10 Yr US T-Bond

1.56%, unchanged

🇬🇧 FTSE 100

7167.95, (-0.61%)
🇩🇪 DAX

12670.11, (+0.32%)
🇺🇸 S&P 500

2989.69, (-0.21%)

Time for Draghi to step up – Again…

The markets are going to be focused on the ECB this week. Investors have been front-running them for so long, and with Draghi taking his bow in several weeks, we think that the central bank will finally take action – Whatever the protestations of some board members. The market expects.

Even if the political news flow has been better of late (Brexit, Italy, Hong Kong, US/China) and boosted the market, the macro numbers remain dire across the Eurozone. The latest numbers saw industrial production drop 0.6% month-on-month in Germany in July, where the odds are in favour of a technical recession being called come the end of Q3. Now is not the time for the ECB to delay and dither further.

We’re thinking in terms of a 20bp rate cut and a resumption of quantitative easing (with a likely compromise €15bn of purchases per month). It will be a shot in the arm that keeps the zombified Eurozone economy ticking along. But it will be a major boost for those fixed income investors hoping that rates can rally some more and the current performance can be maintained. As for 2020’s returns, it is just too far away to start thinking about!

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