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ECB launches new stimulus package to ward off recession – business live
Trump hits out as ECB launches new stimulus package – business live
(32 minutes later)
Another important move: The ECB is making its TLTRO programme of long-term loans to commercial banks more attractive.
Draghi ends his statement by calling on governments to raise spending, where possible, to give the eurozone a fiscal boost.
Banks whose lending crosses a certain benchmark will receive a more generous interest rate on their loan. Significantly, it could be as low as the ECB’s own deposit rate -- which has just been lowered to -o.5%.
Shares are rising across Europe, as equities benefit from the ECB’s latest stimulus plans.
The ECB says:
The French and German markets are both up 0.5%, pushing the EU-wide Stoxx 600 index to its highest level since late July.
For banks whose eligible net lending exceeds a benchmark, the rate applied in TLTRO III operations will be lower, and can be as low as the average interest rate on the deposit facility prevailing over the life of the operation. The maturity of the operations will be extended from two to three years.
The euro is continuing to fall as Draghi speaks, which will NOT please president Trump.
That will make the TLTRO programme more attractive -- and compensate the banks for the impact of negative interest rates.
It’s now lost three-quarters of a cent, dropping to $1.0927. That’s very close to the two-year low hit last week.
TLTRO was originally introduced during the eurozone crisis. It gives commercial banks access to very cheap finance from the ECB, in a bid to push up commercial lending.
The ECB has also cut its inflation forecasts.
The euro has fallen to its lowest level in more than a week.
Draghi blames the lower oil price, and “global trade issues” [a jibe to Donald Trump?!]
It’s down half a cent against the US dollar at $1.0957, as traders react to this new stimulus package.
EURO Tanks as ECB announces1. Rate cut to -0.52. Two tier system for neg rates3. Changes guidance - rates at present or lower until “robustly converges”4. Restarts QE, buy EUR20B a month from Nov 1
The ECB has cut its growth forecasts for 2019 and 2020.
The ECB’s statement is online, here: Monetary policy decisions
It now expects GDP to rise by 1.1% this year, down from 1.2%. In 2020, growth is seen picking up to 1.2%, not the 1.4% previously expected.
Financial news service RANsquawk have helpfully highlighted all the changes:
President Draghi singles out the US-China trade war as a key cause of Europe’s problems.
Deeper negative interest rates are bad news for Europe’s banks. They mean even bigger losses for leaving bank deposits overnight with the ECB.
He says that global trade tensions are hurting the eurozone -- particularly its factories (as we saw this morning, when output slumped by 0.4% in July).
But the ECB has got some good news for them. It will introduce a new “two-tiered” system, under which some banks’ holdings are exempt from the negative deposit facility rate.
Draghi confirms that the ECB has cut its deposit rate (for commercial bank deposits) to minus 0.5%, and will keep interest rates at record lows indefinitely, until inflation has robustly picked up.
The ECB’s Governing Council is pledging to keep rolling over its existing quantitative easing programme too -- another attempt to stimulate the eurozone’s sickly economy.
He also outlines the changes to the TLTRO loans programme, to make them more attractive to banks (as summarised here).
It says:
He then insists that today’s “comprehensive package of monetary policy decisions” will provide the firepower needed to ensure that financial conditions remain “very favourable”.
Reinvestments of the principal payments from maturing securities purchased under the APP will continue, in full, for an extended period of time past the date when the Governing Council starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.
He points to the “continued shortfall of inflation”, and adds that incoming information suggest the eurozone economy is suffering “a more protracted weakness” than previously thought.
The ECB is also pledging to leave its interest rates at their current record lows, or even lower, until inflation has picked up.
ECB president Mario Draghi is about to explain why he and his colleagues have decided to launch a new stimulus programme. You can watch it live here.
It says:
I’ve embedded it at the top of this blog too (you might need to refresh to see it).
The Governing Council now expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.
Watch ECB press conference live: President Mario Draghi explains today’s monetary policy decisions https://t.co/AN04eElLTj
BREAKING: The European Central Bank has announced a new stimulus package, in an attempt to boost growth in the eurozone.
Trump’s latest blast comes a day after he accused the US Federal Reserve of being “boneheads” for keeping interest rates too high.....
It is cutting its deposit rate -- charged on commercial bank deposits at the ECB -- to a new all-time low of minus 0.5%. It was previously -0.4%.
Here’s a handy reminder of the European Central Bank’s new stimulus programme, from ING.
That’s meant to encourage banks to lend to consumers and businesses.
Deposit rate cut by 10 basis point to -0.5%.
The ECB’s governing council has also decided to leave its benchmark interest rate at zero percent -- rather than imposing negative rates on savers.
A tiering system will be introduced.
The ECB is also restarting its quantitative easing programme, and will start buying €20bn of bonds each month from the start of November.
Forward guidance on rates is no longer calendar based but open-ended and state-dependent.
More to follow!
QE will be restarted with €20bn per month, starting 1 November. There is no end date added to QE.
#ECB Cuts Deposit Rate to -0.5% from -0.4%, introduces QE from Nov1 at €20bn/mth. Changes guidance. pic.twitter.com/OraPQaBGC2
The TLTROs will be repriced and include an incentive for banks to increase lending. Along the lines of the first two generations of TLTROs, banks which exceed the benchmark ECB loans will be charged at the deposit rate.
Here’s the latest buzz....with just a few minutes to go.
Newsflash: US president Donald Trump has reacted, accusing the European Central Bank of fighting a currency war.
Ok #ECB time in 9 minsEURUSD at 1.10Expecting 10-20bps cuts, new QE, forward guidance to say rates won't go up in our lifetimes pic.twitter.com/bwEKOrcTbQ
In a sharply worded tweet, Trump says the ECB is is depreciating the euro - at the expense of US exporters.
Stand By Your Desks! The ECB interest-rate announcement is due soon and most likely is a 0.1% cut to -0.5%. Next would be a cut to -0.6% and least likely is unchanged. #Euro
Once again, he’s criticising the US Federal Reserve for not cutting its interest rates [US headline borrowing costs are currently 2.25%, compared to 0% in the eurozone].
Markets have taken an upbeat turn this week. That suggests they reckon ECB boss Mario Draghi really will manage to do "whatever it takes" all over again this afternoon. Be interesting to see what he does.
European Central Bank, acting quickly, Cuts Rates 10 Basis Points. They are trying, and succeeding, in depreciating the Euro against the VERY strong Dollar, hurting U.S. exports.... And the Fed sits, and sits, and sits. They get paid to borrow money, while we are paying interest!
This morning’s weak factory output figures should worry the ECB, says Sven Schulte-Hillen, acquisition and finance partner at Pinsent Masons.
Trump is correct on his last point. French and German 10-year bonds are both trading at negative yields, while US Treasury bills trade at around 1.7% per year.
But... lowering interest rates and boosting QE may not be enough to help.
But that also reflects the fact America’s economy is growing rather faster than the eurozone.
He says:
“The decline in production clearly demonstrates that the EU is facing downward economic pressure. I’m confident many across Germany will be encouraged by the ECB attempting to tackle this early and halt a recession. However, many will question how effective the ECB means will be.
Lowering interest rates will of course increase pressure on the banks to kick-start lending, lower the value of the Euro and give the EU a currency boost. But as Germany grapples with macro-economic and political hurdles, such as a possible no-deal Brexit and Trump’s trade war, interest rates are not the only mechanism that need to be adjusted.”
Just 15 minutes to go! So here’s a reminder of what the ECB could announce.....
Just in: Turkey’s central bank has slashed interest rates dramatically -- but not by as much as some traders expected.
The Central Bank of Turkey has cut its benchmark interest rate from 19.75% to 16.5%, a cut of 325 basis points.
This is the second major rate cut from central bank governor Murat Uysal since he took over in July. That will please president Erdoğan, who has long argued that high interest rate create inflation (not a view shared by many conventional economists...).
Surprisingly, the Turkish lira is strengthening -- showing that traders had expected an even deeper rate cut.
#Turkey's #lira gains as much as 1.3% vs the dollar after the central bank cut rates by 325bps to 16.5%. That's a big cut, but traders are focusing more on slowing inflation. @TheTerminal @markets pic.twitter.com/9RE4x4dz9k
Lira flying on this. Market "whisper number" was a cut of 400 or more. pic.twitter.com/zFqhBW3rMA
Perhaps significantly, the CBRT has also said that the “inflation outlook continued to improve”.
In addition to the stable course of the Turkish lira, improvement in inflation expectations and mild domestic demand conditions supported the disinflation in core indicators.
The ECB has made its decision!
Members of the governing council have been spotted leaving their headquarters in Frankfurt. That means we’ve not got long to wait......
The governing council session at the #ECB is over, central bankers have just left. Another 40 minutes to go until the official communique @SquawkBoxEurope @CNBCi @AnnetteCNBC pic.twitter.com/W8I9WU5SCY
Critics of the European Central Bank will question whether a new bond-buying programme will really work.
The ECB has already swelled its balance sheet by over €2.6 trillion, as it snapped up huge amounts of eurozone debt with newly created money. At one stage it was buying €80bn of assets every month.
Mario Draghi insists QE made a difference -- arguing that unemployment would have been rather higher otherwise.
But while QE has also driven up asset prices, it doesn’t seem to have achieved a key objective - lifting inflation.
As these tweets show, inflation expectations are still rather low, which will concern the ECB’s governing council.
My favorite chart into #ECBEven with all this talk of bazooka, easing, accommodation, tiering.. 5y5y inflation expectations are close to the lows/ have not budgedThis is the problem. Simple as that. pic.twitter.com/wZzH6jKpuT
Eurozone #inflation expectations v #ECB balance sheet. It's time for another bazooka! pic.twitter.com/wgI1TSHnbf
Excitement is building in the markets as investors anticipate today’s monetary policy decision from the European Central Bank, in under an hour.
Some form of stimulus package feels inevitable - unless the ECB wants to crush market expectations and trigger a whopping sell-off. But what form will it take?
ABN Amro believes Mario Draghi will get his big bazooka out, and announce a wide-ranging package of measures.
They includes
Rate cuts. They expect the ECB to cut all its policy rates by 10bp at the September meeting, followed by another 10bp step at the December meeting.
Mitigating measures . A new tiered deposit rate system would protect banks from some of the negative impact of negative interest rates (which crush the profit margin between lending rates and retail deposit rates).The EBC could also make its TLTRO loans programme more profitable for banks.
Net asset purchases. ABN AMRO expect the ECB to announce a €70bn per month QE bond-buying programme running for a year from October 2019 onwards. Other economists expect a rather smaller programme, though.The ECB could also pledge to buy more corporate bonds, and debt issued by European agencies and regional bodies.
Forward guidance. The ECB could give a new, more dovish, commitment to keep interest rates at record lows for longer.
Nick Kounis, head of financial market research at ABN Amro, says:
We expect a package of monetary stimulus from the ECB on Thursday.
Given the pullback in ECB stimulus expectations over recent days, we think there is considerable room for a market surprise on the size of net asset purchases, which will push yields lower, curves flatter and sovereign and credit spreads tighter.
The disappointing drop in eurozone factory output in July shows that Europe’s economy struggled over the summer.
Worryingly, industrial production has been dropping on a year-on-year basis through 2019.
As Bloomberg puts it:
The euro region’s industrial woes persisted at the start of the third quarter as a German factory slump dragged down output more than economists predicted.
Production fell 0.4% in July, deepening a decline from the previous month. The drop was led by Germany, Europe’s biggest economy, which is suffering the most in the region as a global slowdown in trade hurts its exporters.
The euro region’s industrial woes persist at the start of the third quarter https://t.co/umvlEvCAmB
More gloom! Eurozone factory output contracted by 0.4% in July, new figures show.
That’s worse than the 0.1% decline expected, and shows that Europe’s manufacturers is still struggling.
On an annual basis, eurozone factory output was 2% lower than in July 2018.
Eurostat, which compiles the data, says that Estonia, Germany and Romania suffered the biggest declines in factory output -- all down at least 5% year-on-year.
It adds that, over the last year:
Production of capital goods fell by 3.4%, intermediate goods by 3.0% and energy by 1.4%, while production of non-durable consumer goods rose by 1.5% and durable consumer goods by 1.8%
Euro area #IndustrialProduction -0.4% in July over June, -2.0% over July 2018 https://t.co/XpWqxOtypr pic.twitter.com/sWhWsxcbfb
City trading group BP Prime says it’s another recession warning:
Eurozone 's industrial production plunges by -0.4% MoM in July, more than expected -0.1% and by -2.0% YoY, much more than expected -1.3%. It's another clear recession sign, just a couple of hours ahead of the #ECB 's meeting, with the new #QE decision on the table@graemewearden
The German recession would be much more painful if Britain crashed out of the EU without a deal, IFO adds.
A deeper US-China trade war would also drive GDP deeper down, it adds:
Even if their concrete economic consequences are difficult to calculate - because they lack historical experience - they would certainly deepen and prolong the recessionary tendencies in the German economy.
