the articles & research center news
In their September meetings, both the ECB and Fed confirmed their easing mode. The ECB delivered a full monetary policy package (pre-announced in previous months), combining conventional and unconventional tools, together with the introduction of new measures aimed at reducing the sideeffects of negative rates. The FOMC delivered its second rate cut and kept the easing bias while refraining from giving clues on forward guidance, on the back of the still supportive domestic economic picture and the mixed views emerging from the dots. For the first time, therefore, the Fed hinted at resuming the organic growth of its balance sheet: the objective will be to consistently calibrate reserves to the new level of rates, in order to keep optimal abundant liquidity levels, so as not to provide a further stimulus to the economy. In this piece, we focus on these very latest developments and on the monetary policy outlook.
Sergio BERTONCINI, Valentine AINOUZ
Amundi Research & Investment Insights Unit
Recent developments and next steps: Early this month, the UK Parliament passed a motion instructing the Prime Minister (PM) Boris Johnson to request an extension of the Brexit deadline by 19 October, and rejected the PM’s request for elections before 31 October (the current Brexit deadline). This week, the UK Supreme Court judged “unlawful” the advice to susped the legislature given by Boris Johnson to the Queen. These events strengthen our view that another extension of the Brexit deadline is the most likely scenario.
Laurent CROSNIER, Kasper ELMGREEN, Tristan PERRIER
Sir. Simon Fraser, Former Permanent Secretary at the Foreign & Commonwealth Office, and Amundi’s experts will share their insights on the current unique UK state of affairs regarding Brexit (outcomes & political/economic/financial implications).
Jean-Jacques BARBERIS, Laurent CROSNIER, Tristan PERRIER, Simon FRASER
The new two-tier deposit-reserving scheme: With this measure the European banking sector could save up to c. €4 billion in annual interest costs (based on avoiding the -50bps deposit rate). However, while a large number in absolute terms, this only accounts for c. 2% of earnings on average for the main banks in the sector and therefore has little impact on overall Returns on Equity and profitability metrics.
Kasper ELMGREEN, Ciaran CALLAGHAN
The Fed cut rates, but the market expects more: As expected the Federal Reserve lowered its target range for the Federal Funds rate by 25 basis, and now the market anticipates as many as three more cuts by the end of 2020. We think that is too much. In our view, the Fed is likely to pause to monitor the effects of the rate cuts on the economy, before acting again.
Christine TODD, Timothy ROWE, Jon DUENSING
Jean-Jacques BARBERIS, Matteo GERMANO, Annalisa USARDI
The end of the political crisis and next steps for the new government:The new pro- European government looks to be willing to move in a different direction vs the previous one, with an agenda focused on green and socially inclusive policies. It is difficult to project how long this new coalition will last, but it will certainly have to address the next budget law. We expect to see some expansionary measures (lower labour costs plus investment spending), but without putting public finances at risk. However, the available room for manoeuvre is narrow.
Kasper ELMGREEN, Matteo GERMANO, Annalisa USARDI, Isabelle VIC-PHILIPPE