ECB and Risiko Banks: What to expect

“Article written exclusively for Investing.com by Calogero Selvaggio.”

The most anticipated monetary policy meeting of the week will take place on Thursday.

But let’s go step by step.

In the meeting of 22 April 2021, the ECB reconfirmed the very accommodative stance of its monetary policy, the interest rates on refinancing and deposit operations (respectively 0.00%, 0.25% and -0.50% ) and net asset purchases under the pandemic emergency purchase program (PEPP), for a total of € 1,850 billion, at least until the end of March 2022. the asset purchase program will continue at a monthly pace of € 20 billion and will end shortly before the ECB’s policy rates begin to hike. I resolved to ensure that inflation steadily approaches the target level.

On Thursday 10 June, the ECB will speak again on a crucial issue. The so-called PEPP.

In recent months, it has purchased Italian government bonds (as part of the PEPP) for € 26.12 billion, up from the € 20.50 billion purchased in the previous months. The total of purchases of Italian securities comes to 182.94 billion. As for purchases in the QE sector (also called Quantitative Lightening, implemented to stimulate economic growth, that of production, employment and inflation) in May, it bought securities for € 0.585 billion, bringing the total of BTPs. purchased, from the start of the program, for 425.34 billion.

The PEPP had rapid effects on the markets, restoring their stability. Thus it can be said that in the current context its role is to ensure that the general conditions remain favorable and consequently counteract the negative effects of the pandemic on economic activity and inflation, but it must be remembered that it is not the objective of the PEPP to bring inflation back completely to 2%, a “greater” stimulus will be required through the Asset Purchase Program (APP); born to face the financial crisis and the crisis due to COVID-19, the Governing Council has announced a set of measures favorable to the real economy, we are talking for now (as mentioned above) of 20 billion per month and one-off of 120 billion euros for further purchases of securities until the end of 2020; interest rates that remain low or liquidity operations.

After 2 years, inflation has risen.

The ECB will automatically be “projected” to change its policy, reducing Quantitative Easing and raising interest rates.
At least that’s what one would expect under normal conditions. But apparently, there is a great chance, at least for now, that no previous decision will be changed. Christine Lagarde in some of her statements has hinted at this. There would be no rush to change or revert to pre-COVID decisions.

The increase in the prices of raw materials grew by 70%. Il has recorded an increase of approximately 44% since the beginning of 2021, also due to OPEC’s decision to return 2.1 million barrels a day to the market in June and July. Add to this 1 million barrels per day in Saudi Arabia. All this is linked to inflation because the cost of energy consequently affects industrial production, fuels and transport. Another factor, also relevant, is the shortage of microchips which has forced some car companies to stop production. This crisis could take until 2023 to overcome and delay the electric vehicle revolution.

According to the ECB’s statement, the medium-term inflation rate will consolidate at 1.2% in 2022 and then reach 1.4% in 2023.

Technical Analysis

new high in the short term

At the moment it seems unlikely that oil can definitively exceed $ 70. Many sectors (such as air transport and cruises) still operate at reduced capacity. In June, the price of oil could continue to fluctuate between $ 65 and $ 72, forming a new high.

new high in the long term

new high in the long term

In the long term, if the $ 65 target acts as support and breaks above $ 70, it can approach the 2018 high (approximately $ 75).

to view

In the event of resistance in the $ 65 area, the price could reverse and return to the highs of 2017.

To date, the rise in inflation should not cause concern. The economic indicators are positively oriented for the main economies.

The governor of the Bank of Italy, Ignazio Visco, stated that the GDP expansion could exceed 4% and with the continuation of the vaccination campaign, there could be an acceleration of the recovery also thanks to the good start of the NRR (National Recovery Plan and Resilience) which will make 191.5 billion available to Italy (122.8 in the form of loans and 6.8 non-repayable) plus 13 billion React-Eu and 30.64 billion from the government complementary fund.

In Italy there is an optimistic current that has been lacking for some time. We are not swayed by Germany’s fear of inflation. The 2% will only make the economy more “fluent” because it is also a sign that market demand is increasing in the various sectors. But beware: The “favorable” effects can manifest themselves as long as there is a reduction in the debt / GDP ratio and interest rates do not rise.

A noteworthy event is certainly the agreement of the G7 finance ministers on the minimum tax.

It was the United States with Biden that launched the proposal on the profits made abroad by the big giants. Initially it was assumed a rate of 21-25%, then they agreed on a lower value, 15% regardless of where you have the tax domicile. The “new taxman” provides for a tax to be imposed on 20% of profits over the threshold of 10% of profit margin, to be reallocated in the countries where they have made the sales. According to estimates by the European fiscal observatory led by the economist Zucman, € 2.7 billion would be available to Italy.

The positive note, beyond the truthfulness of global equity, is that for the first time countries agree on a minimum rate.

In Italy there are various scenarios.

The banking sector appears to be destined to play a leading role this year. The index of Italian banks has increased by 26.5% since the beginning of the year, reaching the highs of February 2020. In favor of the sector, the indications of the European Union, the end of the dividend ban, the renewal of the guarantee on securitisations of bad loans to facilitate the disinvestment of bad loans from the balance sheets of banks and financial intermediaries.

ftse banks index projections

ftse banks index projections

Let’s talk about the risk that could change the Italian banking market.

For some time we have been preparing for a roundup of mergers and aggregations ready to go. This phenomenon affects everyone, just as the governor of the Bank of Italy, Ignazio Visco, stated, is due to the poor profitability of the sector that projects the banks towards cost optimization. Competition from Intesa Sanpaolo (MI

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