Le chant de la déception. Les marchés attendaient des actes et n’ont pas vraiment apprécié que Mario Draghi, patron de la BCE, n’en n’annonce pas de plus fermes et de plus significatifs la semaine dernière. Heureusement pour lui, l’orage n’aura duré que 24H.Le commentaire heddomadaire de Jan Loeys, chez JPMorgan:
« Equities are again net up on the week, and fixed income overall is slightly up, both beating zero-yielding cash and commodities, and continuing to play by the asset reflation tune we have been harking on for some time. Cash and commodities remain at the bottom of the YTD return parade.
Investor flows, and our strategy continue to focus on what we call mid-risk assets — better-yielding corporate and EM bonds as well as defensive equities — which sit in between aggressive asset classes, such as higher-beta cyclical and EM stocks on one side, and safer cash and government bonds. The combination of low, below-trend economic growth, super-easy monetary policy, and a postponing of fiscal blowups in the US and Europe remains positive for the mid-risk strategy, in our view.
On the growth side, this week’s Global Manufacturing PMI was even weaker than feared, and is near recession levels. To offset the dangerous signal of this production indicator, we need to get better news from services, demand, and jobs. Much of what we have received recently is quite mixed. June retail sales were poor and G3 shipments likely fell. But July car sales and US jobs data were OK, but not great. The July Global All-Industry PMI, which includes services, did move up 1.4%, but still only to a level consistent with no change in growth from Q2. As a result, we believe the risk is that global growth will not rise much from the estimated 1.7% pace in Q2, which is so far the lowest in the expansion. But there is little in the data that suggests a further lurching down in growth. We view a more extended bottoming in growth and later modest rebound as the more likely scenario.
On the policy side, there is no real news on the Western front. The US FOMC is in wait-and-see mode and announced no new policy measures. Congress could only agree to extend government funding for 6 months in the new fiscal year (from October) but remains in gridlock on everything else. The tone of the Presidential campaign does not suggest any move to compromise either.
But it was surely the ECB that created all the fireworks this week. ECB President Draghi had raised hopes of novel actions. His announcement of plans to provide guidance to ECB committees on possible support, conditional on applications to the EFSF and more fiscal conditionality, however, sounded so feeble as to force risk markets badly down yesterday. But 24 hours of more careful consideration of the ECB’s new approach have since led to a realization it could strengthen the ECB’s hand in addressing the debt crisis.
Importantly, Mr Draghi stated that higher sovereign yields affect the transmission of monetary policy and are thus within the mandate of the central bank. But unlike the somewhat random and ineffective SMP bond buying program under his predecessor, Mr. Draghi’s plan is to link ECB buying to EFSF lending and conditionality. This should buy him much needed political legitimacy and backing. Mr Draghi statement to reconsider ECB seniority relative to private sector bond holders also could be a potential game changer.
If ECB committees in coming weeks were to decide that they are accepting being on par with the market (pari-passu) and that they are willing to buy enough of the debt (1-3 year) of a country that asks funding support from the EFSF to bring yields that are affordable and sustainable, then it will have likely taken a large step towards the eventual resolution of the EMU crisis.
But these are big if’s, and these steps will need to be complemented over time with many other measures, such as not forcing countries in recession to pursue greater austerity, enlarging the EFSF/ESM, creating democratic legitimacy to central fiscal control and funding, to start with the most obvious. Most importantly, if the ECB and governments cannot pull the euro economy out of recession, then voters could ultimately demand regime change. »
