Global Daily – ECB running ahead of schedule

by: Aline Schuiling , Maritza Cabezas , Joost Beaumont

Global-Daily-Insight-24-March-2015.pdf ()
  • The ECB is running ahead of schedule in its public sector purchase programme
  • Regional election in Andalusia confirms that Spain’s political landscape has changed
  • Fed Vice-Chairman Fischer says lift off before end of this year, but no steady path afterwards

PSPP: ECB buys EUR 3.3bn a day

The ECB reported for the second time the amounts of settled purchases under its PSPP programme last week. These include purchases of euro area government bonds as well as securities issued by national and European agencies. It was the first time that the purchases were based on a full trading week, as previous week’s amount was only based on three trading days.

 Already EUR 5bn ahead of schedule

The ECB settled EUR 16.5bn of purchases last week, which compared to EUR 9.8bn in the week before last (and taking the total amount to EUR 26.3bn). This implies that the central bank bought around EUR 3.3bn a day, which is in line with the amounts in the first days of PSPP. By doing so, the ECB is running ahead of schedule, although it is still early days. We have estimated that the ECB needs to buy EUR 2.4bn a day in order to reach its announced target. So, currently, the central bank has already bought EUR 5bn above target.

 Regional election in Spain put the traditional parties still in the lead ….

Spain’s regional election in Andalusia on Sunday showed that the traditional political parties were still in the lead. The PSOE (Socialist Workers’ Party) became the biggest party (35% of the votes), followed by the People’s Party (27%). Nevertheless, both parties lost considerable support to the two political newcomers, the anti-establishment left-wing party Podemos  (15%) and the centre-right party Citizens (9%).

 … but confirm rising competition from Podemos

Spain will have a busy political agenda this year (please also see our Spain Watch “Sunny outlook clouded by politics” of 12 March). A large number of regional and municipal elections will be held on 24 May and a national election is due later in the year (the date has not yet been fixed, but it will probably be in December). The results in Andalusia confirm that both Podemos and Citizens have become serious players in Spain’s political arena. Both parties have risen in the polls for the national election,  with Podemos neck and neck with the ruling Partido Popular (PP) of Prime Minister Mariano Rajoy since November 2014. Still, it seems highly unlikely that Podemos will get an outright majority in the national election, while a coalition between Podemos and either PP or PSOE will probably be unachievable. Given the risen popularity of Podemos and Citizens, no party seems to be able to get an outright majority in the next elections, however, implying that the next government will probably be less stable than the current one and political decision making will be more difficult.

24 Mar

Fed Vice Chairman says rate hike liftoff approaching…

Yesterday, Vice Chairman Fischer held a speech on monetary policy at the Economic Club of New York. He mentioned that ‘an increase in the target federal funds range likely will be warranted before the end of the year’. A central topic in his speech was whether the path for the fed funds rate should be sooner with a gradual pace or later and with a steeper path.

 …but path for rate hikes uncertain after lift off

His view is that after the lift off the future path will be uncertain and that this should be taken into account by market participants. To reflect the uncertainty, he said that the future path could be represented as a “fan chart”. As the FOMC responds to incoming information, the rate would be set at every meeting. Our view is that the lift off will start in September and that the path will be gradual moving towards 0.75% at the end of 2015 and to 2.25% end-2016.