Negative Interest Rates
Equity investors, maybe looking at past efficiency and hoping for a statistically common December filled with good joy, may not get it in 2015. A Credit Suisse research study report out Friday states that with “market liquidity likely evaporating towards year-end,” equity markets are unlikely to call in the holidayholiday in peaceful fashion. The report considered, among other things, quantitative easing in Europe and stated if the ECB truly wanted to move the needle it would adjust the deposit rate into negative territory beyond market expectations.
Negative Rate of interest: December could be unpredictable month in EU markets
December 2015 is the month when a considerable monetary diversion occurs, the report, written by Credit Suisse’s European Research study expert Sean Shepley observes. The European Central Bank is set to move left while the US fed will be moving right.
Shepley’s central view, “shared by numerous in the market,” is that the ECB will announce that its EUR60bn a month market stimulus steps will keep until March of 2017 rather than end in September of 2016. Further, the ECB will cut its deposit rate by 10 basis points – moving from an already negative -0.2 percent to the low, low rate of -0.3 percent. All this is occurring as the Fed is likely to raise rates.
With United States central bankers asserting a “information dependent” relationship status with interest rate hikes, how is it the ECB can announce in late 2015 that its synthetic stimulus program slated to end in late 2016 will need to be extended? Almost a year away from the reported end of the historical quantitative experiment, how does the ECB understand that the stimulus between now and Sept. 2016 will not be a runaway success, improve real financial activity and develop, dare it be stated, inflation?
While the report didn’t ask such a direct question, it did note that “When it comes to ECB action, the constant danger (under Draghi’s Presidency) is that policy announcements over-deliver.”
Unfavorable interest rates Will EU main lenders deliver investors a quantitative holiday surprise?
Shepley looks at main lenders and marvels how they could shock the market like a good vacation present.
One choice is to expand the quantitative magic beyond market expectations through either time horizon prolongment or upping the dose of the simulative matter to enhance efficiency. But Shepley is “not exactly sure how reliable such steps would be.” He believes: