DGAP-News

Silvia Quandt & Cie. AG, Merchant & Investment Banking: In-between the lines - Bernhard Eschweiler

DGAP-News: Silvia Quandt & Cie. AG, Merchant & Investment Banking /
Schlagwort(e): Sonstiges
Silvia Quandt & Cie. AG, Merchant & Investment Banking: In-between the
lines - Bernhard Eschweiler

24.02.2012 / 15:44

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  - Greece becomes sideshow as confidence in Euro recovers ...

  - ... and economic news improve

  - Target2 balances reflect ECB´s interbank policy and not transfer
    payments

  - Deleveraging, however, means the party will not last forever

The equity rally has taken a breather for the last few days, partly
triggered by worries over tensions in the Middle East, but a lasting change
in direction seems unlikely.  Market optimism reflects signs that global
economic activity is reaccelerating and rising confidence that the Euro
debt crisis will not spiral out of control.  From Germany, the key news
this week was the better-than-expected February IFO survey, which provides
further evidence that the economy is recovering from the soft patch at the
end of last year.

Of course, trouble spots such as Greece remain.  The second Greek bailout
package is highly conditional and could fall apart in a few weeks if Greece
fails to implement the promised reforms.  But the risk of a Greek default
is troubling markets less.  Especially the ECB liquidity injections, which
are spreading from the banking sector into sovereign bonds, have been
instrumental in turning confidence.  All the good news, however, should not
disguise the fact that we are in the middle of a deleveraging period.  That
means economic and market cycles are shorter.  The party is not yet over
but may not last as long as in the good old days.

Target2 balances and ECB liquidity measures

The return of confidence is visible across financial markets.  Equity
markets have taken the lead followed by sovereign and bank credits.  The
10-year PIIGS spread over Bunds, for example, dropped 150bps since the
start of the year.  Liquidity measures have also improved.  The 3-month
OIS-Euribor spread fell from 101bps to 67bps.  To be sure, the interbank
market is still impaired, but a meltdown has been averted by ECB liquidity
injections.

Encouragingly, after hitting record highs in January, bank deposits at the
ECB have dropped visibly in the last weekly report (from EUR508 billion to
EUR454 billion).  Further success in stabilizing the Euro debt crisis
should also result in a gradual decline of the Target2 balances, which some
commentators view as hidden fiscal transfer from Germany and a few other
core countries to the periphery.  The surge in Target2 balances (positive
and negative) is a reflection of the ECB´s policy response to the collapse