Threadneedle erhöht nach EZB-Entscheid europäische Aktienquote

The ECB yesterday announced full-blown quantitative easing (QE), by confirming that it would inject up to €1 trillion into the eurozone economy through the purchase of eurozone government and corporate bonds. It has also improved the terms of its longer-term refinancing operations (cheap loans for banks), cutting the interest rate at which they are offered.

The market’s reaction so far has not been significant, as the ECB’s move had been anticipated widely. It is nonetheless pleasing that it exceeded expectations as government bond purchases alone are likely to amount to around €40-45bn a month or equivalent to around €750bn over an eighteen-month period (the market had expected sovereign bond purchases in the order of €500bn). There has been some discussion about the lack of ‘mutualisation’ or risk sharing of the government bond purchases, but we feel that the important issue is the commitment from the ECB to expand its balance sheet. Risk sharing was always likely to be a stumbling block, particularly given strong German opposition to the idea, but it should not reduce the effectiveness of the policy in terms of addressing short-term growth and deflation concerns. Importantly, German policymakers have not questioned the legality of the ECB’s decision to implement sovereign QE, although it is clear that many Germans do not like it.

In terms of the market impact, the QE programme should mop up around two times the annual net issuance of eurozone government bonds. This means that the ECB will need to displace some of the current holders of eurozone sovereign debt. Given that 30-year Bunds yield just 1.25%, it should not be too difficult to find sellers of sovereign paper, particularly if growth does begin to pick up. For eurozone peripheral debt, yesterday’s announcement is good news, although the current high level of positioning within that asset class means that there may be relatively little buying in the short term, particularly as the Greek election is scheduled for this weekend.

The bottom line is that the ECB has done everything that could have been reasonably expected and more. The tendency amongst investors will be to own more risk assets, particularly as the ECB’s move will help to keep interest rates low globally. Inflation should not rise excessively and we could see growth rates well above the cost of borrowing in many countries. That is normally a good environment for risk assets such as equities.

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