Euro zone

ECB has reached the limits of its possibilities

Today, the ECB has actually delivered almost everything that investors wanted. As expected, the deposit rate has been lowered to minus 0.5%. This measure is accompanied by an allowance for which there is no negative interest. The purpose of this staggering is to keep the banks‘ burden from the negative deposit interest rate within limits. This differentiation should make life easier for German, French and Dutch banks in particular. Together, they account for almost 70% of the ECB’s surplus reserves. However, the ECB must ensure that money market rates do not move upwards as a result of this graduated system. Bond purchases are to be resumed on 1 November, but this time without a fixed end date. The programme is to be implemented almost until it raises key interest rates again. Since this can take a very long time, this is a clear signal to the markets that the ECB…

Small, high growth dynamic and highly indebted

  In the course of the global financial and debt crisis, Portugal and Greece entered a deep economic crisis together. In the meantime, the tide has turned. With growth rates of 0.5% and 0.8% respectively, Portugal and Greece are among the growth drivers in the euro zone. At this point, however, the similarities have already largely ceased. The starting position that led to this result is quite different for both countries. The fact that Portugal made the leap out of the red much earlier is mainly due to the fact that the country began implementing extensive structural programmes at an early stage and in many cases even exceeded the requirements of the „Troika“. In Greece, on the other hand, the precarious budgetary situation left the incumbent governments with little choice but to comply with the Troika’s demands and pursue tough reform measures. Often, however, the conditions were implemented incompletely or…

Credit demand remains robust

In the second quarter of this year, rising consumer spending by private households and the state was not sufficient to compensate for the weaker foreign trade contribution. As a result, the German economy shrank slightly by 0.1% compared with the winter quarter. The export-dependent German industry, in particular, is feeling the effects of declining demand from abroad. However, incoming orders even from Germany have been declining recently. So far, the economic slowdown in Germany has not affected the credit markets. Corporate loan portfolios continued to grow dynamically in the second quarter. One of the main reasons for this development is the high significance that bank loans continue to have, at least among small and medium-sized enterprises in Germany. In addition, replacement investments and above all investments in measures to maintain capacity continue to ensure solid demand for loans, even though expansion is less in demand at present in view of…

You shouldn’t go by speedboat

The dispute between „value“ and „growth“ followers is almost as old as the stock market itself, although these are not per se contrary investment styles. The value of a company is created by growth. Value stocks are regarded as boring thick ships with little growth and low valuation, growth stocks as speedboats characterised by high profit growth. What is value, what is growth, as defined by the relevant index providers? – They make it easy for themselves and usually only look at the ratio of a company’s price to book value (KBV). This indicates how the current market value of a company is quoted in relation to the equity value shown in the balance sheet. In most cases, the index providers „book“ the more expensive half of all shares in the index according to KBV in the „Growth“ index and the other half in the „Value“ index. In our view,…

Inflation rate in the euro zone at 1.0 percent – Expectations for the ECB rise

The rise in consumer prices in the euro zone did not gain any momentum in August either. According to Eurostat’s flash estimate, the annual rate of inflation in the currency area remained unchanged at 1.0 percent as in the previous month. However, this means that the inflation rate remains well below the ECB’s original target. Once again, energy commodities, which fell in price year-on-year, played a major role in the weak price trend. No wonder, since one of the main fundamental drivers of energy prices in the shopping basket of European consumers, the price of crude oil, is quoted around 19 percent lower than a year ago. At the country level, the national economies, which have also provided initial estimates of price trends, showed only limited momentum. In Germany, the Harmonized Index of Consumer Prices (HICP) fell from 1.1 to 1.0 percent, in France it fell from 1.3 to 1.2…

ECB needs to create more room for manoeuvre for a new bond purchase programme

The ECB is preparing to resume net new purchases of EMU government bonds (PSPPs), which it could announce at its September meeting. A continuation of the PSPP would, however, be severely limited in time under the current programme conditions. In the case of Germany, the ESCB should already reach the issuer limit after about seven months. A change in the PSPP conditions is therefore often discussed. In practice, however, adjustments are likely to be much more difficult than generally assumed. An increase in the issuer limit from currently 33% to 50% could not only violate the ban on monetary state financing, it would also have virtually no effect without the adjustment of the issue limit. However, a change in the current emission limit of 33% would also raise questions. All EMU government bonds issued since 2013 contain a Euro area model Collective Action Clause (CAC). If the ECB were to…

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