ECB: Schnabel's Comments On Q4 BLS Ignore Tightening In Standards
Feb-19 12:13
Schnabel highlighted signals of increasing loan demand from the latest Bank Lending Survey (BLS) as evidence that ECB easing is being transmitted to the real economy. Meanwhile, she did not make reference to the tightening of lending standards reported in the same survey.
- Even if rate cuts are feeding through into increased loan demand, tighter standards amongst banks will limit the pass through of that demand into the real economy. All else equal, this suggests a more restrictive policy stance than implied by loan demand alone.
- Relevant excerpts from Schnabel’s interview: “For corporate loans, 90% of banks said in the most recent round that the general level of interest rates has no impact on loan demand, while 8% said it has lifted credit demand”….”It’s even clearer when you look at mortgages. Almost half of banks said in the most recent round that the general level of interest rates is supporting loan demand.”
- ECB Chief Economist Lane noted on Feb 5 that this tightening of standards was “driven by the fact that banks see higher risks to the economic outlook and have lower tolerance for taking on credit risk”.
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OUTLOOK: Price Signal Summary - S&P E-Minis Bull Cycle Still In Play
Jan-20 12:11
- In the FI space, the trend in Bund futures is unchanged, it remains bearish. However, the Jan 15 rally highlights a short-term reversal signal - a bullish engulfing candle. It suggests scope for a continued corrective phase that would allow an oversold trend condition to unwind. A continuation higher would open 132.47, the 20-day EMA. The bear trigger has been defined at 130.28, the Jan 15 low, a break would resume the downtrend.
- The trend condition in Gilt futures is unchanged, the direction remains down. However, strong gains last week highlight the start of a corrective phase and if correct, signals scope for a continuation higher near-term. Attention is resistance at the 20-day EMA, at 91.55. This average has been breached, a clear break would suggest scope for a stronger retracement. On the downside, the bear trigger has been defined at 88.96, the Jan 13 low. First support lies at 90.68, the Jan 16 low.
US TSYS: Modestly Cheaper To Start Inauguration Day
Jan-20 11:45
- Cash Treasuries are closed today for Martin Luther King Day whilst futures markets are set for an early close at 1300ET.
- Focus is firmly on Trump’s inauguration, due to be sworn in at 1200ET and with eyes on executive orders that may follow. See our political risk team’s schedule for the day: https://media.marketnews.com/MNIPOLRISK_Inauguration_Day_Schedule_07a11994f9.pdf
- TYH5 pushed through Friday’s low overnight with 108-10 (currently 108-12+, -05) but still carries some of the impact from a dovish Waller on Thu and all of Wednesday’s CPI impact. Cumulative volumes are unsurprisingly extremely thin, at 165k.
- Gains are considered corrective against a medium-term bearish trend condition. Resistance is seen at 108-27+ (Jan 17 high) whilst support is seen at 108-00 (Jan 13 low).
- Fed Funds futures meanwhile price a cumulative 7.5bp of cuts for Mar, 13bp for May, 23bp for Jun, 26bp for Jul and 38bp for 2025 (the latter vs 32bp pre-CPI).
EURIBOR OPTIONS: Large Call Condor is bought for more
Jan-20 11:45
Large Condor in Euribor is still trading, multiple clips:
- ERM5 98.125/98.25/98.375/98.50c condor, bought for half in ~40k.
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