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ECB-Account of the monetary policy meeting of the Governing Council of the European Central Bank 6-7 March 2024
April 4, 2024-1. Review of financial, economic and monetary developments and policy options
Financial market developments
Ms Schnabel noted that, since the Governing Council's previous monetary policy meeting on 24-25 January 2024, monetary policy expectations had retracted further from the early and large interest rate cuts initially foreseen at the turn of the year.
More favourable news on the global economy and less favourable news on inflation had both been key factors in shaping financial market developments. In the case of the first factor, macroeconomic data surprises had moved into positive territory in the euro area, the United States and China for the first time since May 2023. As a result, investors attached a discernibly lower probability to the scenario of a hard landing for the global economy.
The second factor related to a reassessment of the medium-term inflation outlook. Higher than expected inflation releases in the euro area and the United States, especially for core inflation, had dented investors' hopes of rapid and smooth disinflation.
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Source: ecb.europa.eu
Spend it at home: current account surpluses in the EU
April 2, 2024--EU leadership needs to identify the factors that hold investment back and the incentives that could persuade investors to stay in Europe
The European Union faces huge investment gaps. For the climate and digital transitions alone, EU countries need to find or encourage annual investment of at least €481 billion each year, over and above what is already planned. This amount is much larger if one includes defence spending needs, the reconstruction of Ukraine, and spending to prepare for potential health crises in the future.
And yet, despite these huge investment gaps, the EU continues to send a large part of its savings outside its borders. It has huge savings but prefers to invest these abroad rather than within its own borders. The European Commission forecasts that nine EU countries will have current account imbalances in 2024. Of these, five will have current account surpluses that can be as large as 10% of GDP. The EU overall is forecast to have a surplus exceeding 2.5% of GDP by 2025.
In nominal terms, EU GDP is about €18 trillion. A surplus of 2.5% of GDP thus represents about €450 billion. If the EU could use these excess savings, it would manage to cover its climate and digital investment gaps almost in full. Solving the enormous inconsistency of having big investment gaps while running with large current account surpluses is urgent and complex.
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Source: bruegel.org
ESMA publishes latest edition of its newsletter
April 2, 2024--The European Securities and Markets Authority (ESMA), the EU's financial markets regulator and supervisor, has today published its latest edition of the Spotlight on Markets Newsletter.
Your one-stop-shop in the world of EU financial markets focused in February and March on EU Green Bonds and our extensive activity on the Markets in Crypto Assets Regulation (MiCA). In both cases, we invited stakeholders to send their feedback on 1. rules for External Reviewers of EU Green Bonds and 2. on the third MiCA consultation package. On the latter, ESMA is seeking input on:
Detection and reporting of suspected market abuse in crypto-assets;
Policies and procedures for crypto-asset transfer services;
Suitability requirements for certain crypto-asset services and format of the periodic statement for portfolio management; and
ICT operational resilience.
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Source: esma.europa.eu
ECB-Monetary developments in the euro area: February 2024
March 28, 2024-Annual growth rate of broad monetary aggregate M3 increased to 0.4% in February 2024 from 0.1% in January
Annual growth rate of narrower monetary aggregate M1, comprising currency in circulation and overnight deposits, was -7.7% in February, compared with -8.6% in January.
Annual growth rate of adjusted loans to households stood at 0.3% in February, unchanged from previous month
Annual growth rate of adjusted loans to non-financial corporations increased to 0.4% in February from 0.2% in January
Components of the broad monetary aggregate M3
The annual growth rate of the broad monetary aggregate M3 increased to 0.4% in February 2024 from 0.1% in January, averaging 0.2% in the three months up to February. The components of M3 showed the following developments. The annual growth rate of the narrower aggregate M1, which comprises currency in circulation and overnight deposits, was -7.7% in February, compared with-8.6% in January.
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Source: ecb.europa.eu
European clean tech tracker
March 28, 2024--This trackers provides an overview of the main innovation, manufacturing and deployment trends in clean tech in Europe
Introduction
This European Clean Tech Tracker aims to provide a clear, timely and policy-relevant overview of the main innovation, manufacturing and deployment trends characterising the main technologies underpinning Europe's green transition.
Driven by the conviction that good policy making must be informed by transparent and reliable data, this tracker seeks to become a useful tool to inform public and private decision-making processes, as well as the broader public discourse on Europe's green transition.
Clean tech data in Europe remains significantly fragmented and difficult to access, and it is often only available on a commercial basis. This is problematic, because public data on clean tech innovation, manufacturing and deployment is essential to guide Europe’s green transition moving forward.view more
Source: bruegel.org
Germany's Real Challenges are Aging, Underinvestment, and Too Much Red Tape
March 27, 2024--Germany faces some serious economic challenges, but they aren't necessarily the ones getting the most attention. Solving these challenges requires ambitious reforms
Germany is struggling. It was the only G7 economy to shrink last year and is set to be the group's slowest-growing economy again this year, according to our latest projections. Some pundits say Germany's economic model is irreparably broken.
They argue strong growth in previous decades was based on importing cheap Russian gas, which in turn powered Germany's highly competitive export industries. With this cheap gas no longer available, the German manufacturing model doesn't work anymore, or so the story goes.
But is this accurate? It's certainly true that the shutoff of Russian gas in 2022 contributed to spiking inflation and cost-of-living pressures. However, the rise in gas prices has proven to be temporary. After soaring in 2022, wholesale gas prices have now fallen back to 2018 levels.
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Source: imf.org
Germany's Real Challenges are Aging, Underinvestment, and Too Much Red Tape
March 27, 2024-Germany faces some serious economic challenges, but they aren't necessarily the ones getting the most attention. Solving these challenges requires ambitious reforms
Germany is struggling. It was the only G7 economy to shrink last year and is set to be the group's slowest-growing economy again this year, according to our latest projections. .
Some pundits say Germany's economic model is irreparably broken. They argue strong growth in previous decades was based on importing cheap Russian gas, which in turn powered Germany's highly competitive export industries. With this cheap gas no longer available, the German manufacturing model doesn't work anymore, or so the story goes.
But is this accurate? It's certainly true that the shutoff of Russian gas in 2022 contributed to spiking inflation and cost-of-living pressures. However, the rise in gas prices has proven to be temporary. After soaring in 2022, wholesale gas prices have now fallen back to 2018 levels.
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Source: imf.org
Two new active ETFs from iShares on Xetra: exposure to US and developed market equities through active investment strategies
March 26, 2024--Since Tuesday, two new actively managed exchange traded funds from iShares have been tradable on the trading venues Xetra and Börse Frankfurt.
The iShares U.S. Equity High Income UCITS ETF pursues an active investment strategy designed to generate income and capital growth with lower volatility than the broader US equity market. The strategy applied by the portfolio manager essentially consists of the following components:
Holding long positions in US large capitalisation equities, taking into account an ESG investment policy,
Selling call options on a large capitalisation US equity index, such as the S&P 500 Index, to generate additional income; and
Buying futures on a large capitalisation US equity index, such as the S&P 500 Index, to reduce the impact of a potential profit cap from the sale of call options.
The iShares World Equity High Income UCITS ETF follows a similar approach, but focuses on developed market large and mid-capitalisation equities. For this purpose, call options are sold and futures are bought on indices such as the S&P 500, FTSE 100, Nikkei and EURO STOXX 50. n October 1, which fell on a weekend.
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Source: Xetra
T+1 feedback report shows mixed impacts of shortening the settlement cycle in the EU
March 21, 2024-The European Securities and Markets Authority (ESMA), the EU's financial markets regulator and supervisor, is today publishing feedback received to its Call for Evidence on shortening the settlement cycle.
In the report ESMA summarises the feedback from market participants during the consultation, focused on four areas:
Many operational impacts beyond adaptations of post-trade processes are identified as resulting from a reduction of the securities settlement cycle in the EU.
Respondents identified a wide range of both potential costs and benefits of a shortened cycle, with some responses supporting a thorough impact assessment before deciding.
Respondents provided suggestions around how and when a shorter settlement cycle could be achieved, with a strong demand for a clear signal from the regulatory front at the start of the work and clear coordination between regulators and the industry.
Stakeholders made clear the need for a proactive approach to adapt their own processes to the transition to T+1 in other jurisdictions. Some responses warned about potential infringements due to the misalignment of the EU and North America settlement cycles, that ESMA is currently assessing.
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Source: ESMA
The European Central Bank, inflation tolerance and the last mile
March 20, 2024--Inflation in the euro area has declined convincingly from the very high levels seen in the past couple of years. The rate is expected to be 2.3% in 2024-what a difference from 8.4% in 2022 and 5.6% in 2023.
But in January 2024 it was still 2.8%, so still has some way to go before dropping to 2.3%, and then to 2%, which is commonly considered to be the desirable level.
In a speech in November, European Central Bank (ECB) executive board member, Isabel Schnabel seemed to pre-empt this, talking about the "last mile" that, just like in endurance sports, is the hardest to push through.
But insisting on completing the "last mile" is quite the wrong narrative to follow. As the system is rigged with uncertainty and there is no way of understanding either the direction or size of risks, the ECB should talk instead about inflation tolerance -or risk introducing even greater volatility into the system.
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Source: bruegel.org
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