Andbank: “2019 Shyly Raise Rates”

The head of strategy of Andbank Spain, Marian Fernandez, believes that the European Central Bank (ECB) should take advantage of 2019 to begin to raise “timidly” interest rates, at least deposit.

Although, on the other hand, it considers that it could keep them unchanged throughout the year. Marian Fernandez believes that right now there is a “limited visibility”, so it is “in a moment of waiting” in which you can expect “a moderation in growth.” But, sentence, “it is not a prerecession situation.”

To reach this conclusion, Fernández points out that 2018 was a year of “more to less” for European macroeconomics and, in addition, 2019 starts with “disappointing” surveys. It refers, for example, to the figures that show the PMIs of the euro area and that were already unexpected in 2018. Therefore, from Andbank forecast that 2019 the growth will be “moderate” with the consensus estimates of 1, 5% potential growth This growth will be produced by “domestic demand, supported by labor improvement, and expansive public spending, which would compensate an external sector clearly at risk of regression.” In this sense, the entity’s strategy chief looks at the stabilization of the Chinese economy because it would greatly help the highly exporting companies of the euro zone such as the German ones.

In relation to inflation, believes that “is not now in the spotlight” and that we must look at the underlying because this “yes should be picking something job creation in the euro zone.” It does acknowledge that the ECB was wrong in its estimates of inflation increase for 2018, “although not so much”.

Fernandez comments that the ECB should take advantage of “the temporary window” or “window of opportunity” that the Federal Reserve of the United States (Fed) now offers to it by relaxing its policy of rates and stopping the increases in an exercise, qualifies, of “effort” standardization “by the US agency, but adds that these windows” were already open last year. ”

Calm in the Fed

The chief economist of Andbank, Alex Fuste, in relation to the Fed, qualifies his performance during the last course of “very aggressive”, but the scenario has changed. The change of vision of the Fed has been, according to the analysis of Fusté, by the “symptoms of exhaustion of the American economy reflected in sectors such as the automotive sector”.

With the new scenario, the entity forecasts a growth of the US economy between 2.5-2.7% “decelerating as the year progresses,” says Fusté. For the chief economist of AndBank, the Fed would make a mistake if it were more aggressive, but believes that its president, Jerome Powell, has activated the “wait and watch” mode, as did its predecessor in the position, Janet Yellen, during 2015 and 2016. Do not expect a reduction in rates, just a year of transition because “Powell has slowed down to see the catastrophe that would rise for the markets and has acted as traditionally has done the Fed in these situations, coming to the rescue” . For Fusté, “the Fed still has a margin of 100 basic points of increases, up to 4 more increases, to bring triple B financing to a limit situation, in which it would no longer make sense to invest”.

Attention to a possible TLTRO III and increase in the yield of bonds

After leaving the QE tool, Andbank believes that the ECB’s policy during 2019 will remain very “accommodative”, with some flexible revisions in order to smooth the completion of the asset purchase program. Marian Fernández emphasizes that “the entity leaves the door open to the possibility of multi-year liquidity measures focused on the banking sector of the periphery”. Therefore, it would not rule out a possible TLTRO III which, “although it could be controversial” would guarantee a financial stability where the Spanish and Italian banks would benefit greatly, “although they are not currently at risk”.

Regarding the European debt market, the entity expects “gradual increases in bond yields”, and mark an objective for the German bond of 0.8-1% by the end of the year. In relation to the debt of the peripheral European countries, “and with a good part of the positive news already behind”, Marian Fernández estimates that the spreads “should not be narrowed”, with Italy “perhaps”, as an exception. Thus, for Spain they grant 1.9%; Italy, 3%; Portugal, 2.2%, and Ireland, 1.2%.


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