From sovereign to banking, the support of the Federal Reserve and shareholders is facing changes. The European Central Bank will have to acquiesce


Do the central banks which decided on the first – at least official – tightening of their expansionist policies really have the fight against inflation as a guiding principle? Thinking back to the excitement Neglect in the Middle East and Africa Her Majesty’s Governor of the Bank of England Consumers, you might think. As well as the official elimination of the character transient From the definition of inflation that appeared in the last Fed press release, she will speak this language.

Be careful though. Because the devil is in the details. In the labyrinth of the market. These two graphs


Fed Day Inflation Outlook Trend (Dec 15)
Cast: Bloomberg


Implied trend in US interest rates on futures contracts
Font: Financial Times

It reveals a fundamental fact that we will have to face, given that The most pressing question is how to deal with the emerging difference in policies between central institutions. The first shows how price expectations rose by just 10 basis points within two hours of calls from the Federal Reserve’s Monetary Committee (FOMC) last Wednesday. The second, however, shows us how already the next day Futures have indicated a clear and reassuring confidence on the part of traders in Jerome Powell’s true operational intentions regarding rate hikes..

translated, The Federal Reserve has completely lost its credibility. This is where the main concept comes in: central banks play the role of hub but are no longer a playmaker.. I’m like a traffic cop who runs the traffic, but their job ends once everyone decides which side of the square to go to. every month or month and a half, The meetings of the various boards of directors stimulate attention and bring order to the chaos of the market: and then realism reigns in the trading rooms. The latter concept is light years away from the logic of those for months classified and removed from it as temporary inflation which, for example, in Britain in April is expected to be 6%.

There is more, however. The Federal Reserve and the Bank of England both operate in Falco, at least in relation to full quarters of Doo lace Frontier Cash on Faustian. But they did so without effective movements immediately against the price race.. No need to increase prices or flip dashboards to the point of declaring 3 upward adjustments for 2022, When purchasing programs remain running at the same time. Bank of England Without affecting the amounts in the slightest, the Fed sold stocks with a double tap in the market and public opinion, but still guaranteed stable rates and record balance sheets until March 31. All this, therefore, with a view to total flexibility. That is, if the position micron reaches the bank, it will revert to the previous system in real time.

It is difficult to fight inflation effectively in this way. Of course, this is always better than the Turkish Central Bank’s prescription, but it will be necessary to stay in the realm of credibility. Why this gamble then? Just to secure the headlines and save more time, hoping to be a catalyst for the pandemic? No. These two other graphs show that,


The relationship between the Stoxx 600 banking sector and 10-year US Treasury yields

The relationship between the Stoxx 600 banking sector and 10-year US Treasury yields
Cast: Bloomberg


The relationship between the Stoxx 600 banking sector and the overall price target

The relationship between the Stoxx 600 banking sector and the overall price target
Cast: Bloomberg

From them we note a key element: After quarters of support to the sovereign sector, it is now up to commercial banks to call on some of the services of the Federal Reserve and its partners. Mislav Matika. The JP Morgan strategist, without a doubt: Banks are the key game for the coming year, both in terms of potentially increasing income and flattening their curve.. It is no coincidence that the two images refer to the Euro Stoxx 600 bank, or to the banking sector in the European reference.

In fact, the European Central Bank was the only major central bank to officially remain colomba, to confirm the end of Pepp on March 31 but play the APP expansion card for the same period. Small things, indeed. But symbolically enough to secure the headlines. However, there is a problem, and the second graph clearly shows it: Sovereign yield trends play a role in the fate of the banking sector And in the case of the European system, which operates under a strong discount system, traders are already pricing something else. That is, a 20% increase over the next 12 months to the total target price level. In short, the ECB must do something. You may have already done so. Because the failure of the EU stock markets after the Council is fundamentally a sign of a forced tightening of monetary policies In progressSomething that will not be noticed until it has happened.

But the banks which are already dependent today. Not a coincidence. With an EPS of 8.5 and a book price of 0.6, the banking segment of the Stoxx 600 is not only historically low priced, but operates at a 45% price discount rate. P / E. Throughout the index. In short, the sovereign spread will have to wait a while, because banks (and their profitability) also have their needs. The European Central Bank will have to understand this. In fact, I already did, because I announced on Friday how There will be no more TLTRO auctions, as mainland institutions can count on abundant liquidity. Is this just the $ 52 billion error I asked for in the last allocation? No, the whole mechanism is going to change the structure now: from above average a central bank.

For a while, at least. The direct result of such a fundamental policy change? This last graph shows you:


Correlazione fra USA Liquidity Index Treasury / Junk Spread

Correlazione fra USA Liquidity Index Treasury / Junk Spread
Cast: Bloomberg

Around 3,200 zombie companies around the world, or those that in the last six quarters of the pandemic recorded an interest service rate of less than 1, appear doomed to extinction.. And in this case, almost in real time, because if the increase in taper is equivalent to fresh water due to the inflation dynamics, On the other hand, it directly affects liquidity. In short, more than 10% of the 25,518 officially ranked and tracked zombie companies worldwide could say goodbye as early as 2022. Central banks have already changed paradigm. But not in the sense of explaining this revolution in general.


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