The overnight market sentiment was positive; US equity indices reached their all-time highs as NFP number turned out to be much better than consensus and unemployment rate fell to 6.1%, the lowest since September 2008.
USD strengthened across the board while the prices of safe assets such as US Treasuries and Gold fell. Oil price continued to drop (at a slower pace) amid news that Libya is set to resume its oil exports after retaking eastern oil terminals from the rebels. Today, the market will be relatively quiet heading into the weekend amid US holiday and a light data calendar.
Yesterday’s ECB meeting turned out to be less dull than expected as the TLTRO documentation left many wondering what the implications would be for bank liquidity and for the real economy. Clearly, the ECB is counting on those TLTROs to ease monetary conditions further, to improve policy transmission, and to boost inflation eventually.
Bank demand will depend on a number of factors but, on balance, we were left with the impression that the TLTROs’ conditions were even more generous than we had been expecting, allowing deleveraging banks in particular to borrow more cash at the ECB from 2015 onwards, using the extrapolated net lending benchmark. As regards net lenders, the benchmark will be set at zero and thus should be fairly easy to beat.
On balance, we stick with our initial view that the cumulated TLTRO take-up will be large (the EUR1trn number mentioned by Draghi is at least theoretically within reach) and the macro impact positive, although some constraints will remain, including regulation.
Meanwhile, the ECB decided to adjust the frequency of policy meetings to a six-week cycle and to publish “accounts” of its discussion from January 2015. The impact on the conduct of monetary policy should be marginal, but liquidity conditions could be affected initially.
CA