The European Central Bank (ECB) has far exceeded analysts' expectations with the announcement, after its June monetary policy meeting, of a 600,000 million euros increase of its pandemic pandemic asset purchase program (PEPP). And even then, the 1.35 trillion total that it has until June 2021, flexible in terms of jurisdictions and amounts, know little if compared to the infinite quantitative easing of the Federal Reserve (Fed) and the Bank of Japan .
The market satisfaction with the step taken by the entity that pilot Christine Lagarde is remarkable and is reflected in the behavior of the bags and the euro, who have come up eagerly. But investors continue to make castles in the air with the idea that the central bank will expand again, probably after the summer, its firepower with more stimuli and the inclusion of junk bonds, the so-called 'fallen angels', among the eligible assets, as the US and Japanese central banks already do. And there are even those who shake the old idea of the ECB becoming shareholder of European companies through the purchase of ETFs, as their counterparts are already doing.
Of these two questions, the first is, without a doubt, the most feasible. In fact, many analytical houses had anticipated that this month was the time to take the step and include these 'fallen angels' – companies that have just lost the investment grade rating -, "which would lower the tension of the bonds of high performance ", pointed out the experts of Barclays. "And this, despite the fact that volumes of 'fallen angels' decreased in May, a potential sign that rating agencies are feeling more optimistic after the gigantic fundraising that European companies have recently undertaken, "added BofA Global Research.
But Lagarde explained that the Governing Council I had not put this question under discussion and left these types of assets out of their purchases, for now. Although it accepts them as a guarantee (collateral) to give liquidity to banks, until September 2021, unlike the Fed, the ECB will not acquire them directly. But this does not mean that low-rated European bonds are not "a major systemic risk on the continent," according to Daniel Tenengauzer, chief strategy officer at BNY Mellon, "as they are in the US." Potential 'fallen angel' issuers are 43% of the corporate bond market in Europe, compared to 48% in the United States. Therefore, the ECB "will need to consider its direct purchase," it says.
THE ETF, FLOUR FROM ANOTHER COSTAL
Different is the case that the ECB intervenes directly in the stock market. The idea of the European issuing institute becoming a shareholder in the stock markets of the Old Continent is not new. In fact, there has been much speculation with her since Draghi ended the asset purchase program, in December 2018, which in 2019 reactivated again. However, it is a politically difficult step for the central bank, although "they could be more stimulating than sovereign assets," says Morgan Stanley. "But these are riskier assets, in a riskier economic environment, and pose governance problems," adds the US investment bank.
The Bank of Japan is a veteran in this practice, since has bought traded funds since 2010 -Data for March showed that he had 75% of all ETFs in the Nikkei and Topix. The Fed purchased US $ 300 million of publicly traded funds on the first day of its historic intervention in the US corporate debt markets, its balance sheet update from mid-May revealed.
ETF purchases are part of the latest emergency loan program that the US central bank has launched to help alleviate the impact of the coronavirus pandemic on the United States' economy and financial markets. And it is not ruled out that if the ravages of the pandemic do not ease in Europe or if a feared outbreak occurs without a vaccine, the ECB may have to update its famous 'toolbox' with extraordinary measures.
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