Global Daily – Eurozone reports on Brexit impact mixed

by: Nick Kounis , Hyung-Ja de Zeeuw

Euro Macro: ECB Bank Lending Survey resilient – Eurozone banks appear not yet to have reacted to weakness in their equity prices or Brexit to change the availability of loans to the private sector. They also reported that the TLTRO-II was having a positive impact, suggesting that the ECB’s super-cheap long-term liquidity was cushioning the blow. However, the ECB also warned that ‘it may have been too early for the banks to assess the implications’ of Brexit with some of the responses before the vote and some just after (survey was carried out 14-29 June). Eurozone banks eased lending conditions in the past 3 months to companies (-7 from -6). After some tightening in the last quarter, banks are easing lending conditions on mortgages (-2 from +4), while consumer credit continued to be eased (-5 after -3). Meanwhile, demand for all loan categories held up well. Finally, banks were rather complimentary to the ECB about the scheme it set up to help them. A higher proportion of banks (60%) participated or planned to in the future (51%) and their participation was mainly driven by profitability motives (88% of respondents). Banks reported that they would use the funds to grant loans (60%), especially to companies, while most of the rest would use the funds for refinancing purposes to replace other sources of funding (33%). (Nick Kounis)


Global-Daily-Insight-20-July-2016.pdf (46 KB)


Euro Macro 2: Germany’s ZEW plunges on Brexit Germany’s ZEW expectations indicator fell to -6.8 in July (consensus: +9) from +19.2 in June, mainly on the back of the UK’s vote to leave the EU, according to the institute. The drop took the index to its lowest level since November 2012. The ZEW index is not the greatest indicator in the world in terms of its relationship with German GDP growth, but it can be good at recording turning points. Note that it is a survey of financial analysts and investors rather than businesses or consumers. We will get more information on the early real economy impact shortly though. The European Commission’s flash consumer confidence indicator for the eurozone is published later today, while the flash PMI surveys for the eurozone, Germany and France will be released on Friday. We expect to see a significant deterioration in these surveys in line with the signal from the ZEW on the back of heightened Brexit-related uncertainty. We think this will make businesses somewhat more conservative in their hiring and investment decisions. (Nick Kounis)

Euro credit: ECB buys risky corporates – For the first time since the start of the CSPP programme, the ECB published a list of bonds it had bought. In total 400 bonds from 167 different issuers were purchased. The most remarkable conclusion is that risk is clearly not an issue for the ECB. Among the riskier holdings is crossover issuer Telecom Italia. With a Ba1/BB+/BBB- rating, the issuer narrowly satisfies the rating criteria. Another crossover issuer that was on the list was Energias de Portugal Finance BV with a Baa3/BB+/BBB- rating. Almost 12% of the bonds the Eurosystem bought belong to the BBB- basket, the riskiest investment grade category. This is 2% pt. more than the eligible pool. In terms of maturity, the Eurosystem mainly bought bonds with maturities up to 10 years, although some longer dated bonds could also be found on the list. The longest dated bond was a 20 year bond of French utility RTE Reseau de Transport. Another remarkable point was the fact that 111 out of the 400 bonds purchased, had a negative yield to maturity. In the current environment it is almost impossible to stay away from negative yielding bonds. Currently about EUR 255bn worth of bonds denominated in euros have a negative yield. (Hyung-Ja de Zeeuw)