The FTSE 100 Index was down 17.2 points at 6,711.75 as commentators speculated that the European Central Bank would hold rates but would signal more monetary pump-priming in September.
Advertisement
Britain’s unprecedented vote to leave the European Union could hurt trade in the region and weigh on business confidence as it could take years to establish new trade relations.
The quantitative easing plan now involves the European Central Bank buying back 80 billion euros ($88 billion) every month until the program terminates in March 2017 – a total stimulus of over 1.4 trillion euros.
Draghi repeated the bank’s position that something needed to be done to address the problem of bad loans and also called public backstop in such case “useful” but said this was ultimately between Italy and the European Commission to work out. The hope is that will increase lending and raise inflation to levels more consistent with steady growth.
If lenders are offering lower rates to one group of customers, the banks will have to explain why they are doing so.
“Some members of the ECB have attempted to take the spotlight off of July’s meeting, with Luis Linde saying that the bank will not give an assessment of the economy until September, allowing for two months’ worth of post-Brexit data to be assessed”. The ECB could then expand the universe of eligible bonds by various tweaks, including (a) eliminating the aforementioned minimum yield, (b) enlarging the range of maturities beyond 2-31 years, and/or (c) increasing its issuer and/or country limits from 33 percent of the total.
Suggestions of an extension of QE won’t be able to weaken the Euro as further corporate bond purchases would not be able to bring down long term government bond yields sufficiently. US government bond yields ticked lower to 1.5732 percent US10YT=RR following a near 20 percent rise since the start of the month.
“This month is all about central banks sitting on their hands and the ECB is no exception”, said Aberdeen Asset Management’s Luke Hickmore. Prime Minister Matteo Renzi has floated the idea of using government money to bail them out, which could provoke a conflict with new European Union rules created to limit the burden of rescuing banks on taxpayers’ wallets.
There was more bad United Kingdom economic news as retail sales figures showed a 0.9% month-on-month drop in June, below the consensus of -0.6%. For the protection of AP and its licensors, content may not be copied, altered or redistributed in any form. Doing so may result in civil and/or criminal penalties.
Advertisement
However, he added: “Having said that, the bank may very well follow in the footsteps of the BoE and may use the approach of ‘wait and see” before they take any more remedial action’.
