Rolling coverage as the European Central Bank leaves interest rates at record lows again
Draghi says Brexit shock handled well
Draghi: Public backstop would help banks tackle bad loans
Earlier: Eurozone borrowing costs unchanged
UK retail sales slid in June
EasyJet hurt by Brexit and terrorism
3.54pm BST
That wasn’t the most dramatic or exciting press conference in the European Central Bank’s 18 year history.
Instead, there was a real end-of-term feeling, as Mario Draghi basically told reporters to come back in September and see if the ECB has decided to boost its stimulus programme.
Following the UK referendum on EU membership, our assessment is that euro area financial markets have weathered the spike in uncertainty and volatility with encouraging resilience....
What is clear is that financial markets and the banking sector have reacted in a fairly resilient fashion to the event.We haven’t observed any disruption either in financial markets or the banking sector.”
Over the coming months when we have more information including new staff projections we’ll be in a better position to assess the underlying macroeconomic conditions.
“The longer we have this (non-performing loan problem) in place, the less functioning will be the banking system, or at least will be the banks with high NPLs.
And so the less capable will be these banks to transmit our monetary policy impulses to the real economy. Also, a high level of NPLs makes banks especially vulnerable to the markets.”
#ECB's Draghi: NPLS an obstacle to transmission of our monetary policy. pic.twitter.com/w161OzB9qE
“In the past we’ve given enough evidence ... of our ability to adapt our purchases to reach 80 billion euros a month until March 2017 or beyond.”
3.17pm BST
Trevor Charsley of currency trading firm AFEX says Draghi’s comments show we’ve entered a ‘phoney war’ following the EU referendum.
“In commenting that there was no Brexit induced disruption apparent in the banking sector, Draghi was merely confirming that, after a knee jerk reaction in the markets immediately following the EU referendum, we have effectively entered a period of limbo or a ‘phoney war’ while we await more economic data, while political decisions are made and holidays taken.
As we receive the announcement of a plan from the UK government, a few months of post-Brexit economic data and a potential triggering of Article 50, the fog will begin to clear and we’ll see then how the central banks respond
2.52pm BST
2.50pm BST
Mario Draghi’s call for a public backstop to help banks shed their bad loans has sparked a small rally in bank shares.
Reuters has the details:
Deutsche Bank shares, which opened flat, rose 3% following Draghi’s comments.
The FTSE Italian All Shares Banks index rose nearly 2%.
So we got it - main ECB news is that Draghi backs the idea of public backstop for banks under exceptional circumstances.
2.44pm BST
Mario Draghi’s introductory statement is now online here.
And here’s a word cloud of it:
2.42pm BST
Ian Kernohan, Economist at Royal London Asset Management, is quick out of the traps with some reaction to the ECB’s meeting:
While we think Brexit uncertainty is mainly an issue for the UK economy, there is also bound to be some knock-on impact on the Eurozone. With post-Brexit evidence still patchy, we think the ECB will wait until the September meeting before extending its QE timetable.
Inflation remains far below the ECB’s target of 2% and while headline inflation will rise later in the year, thanks to the fading impact of a lower oil price, underlying inflationary pressures still remain very low. Delaying until September will allow an assessment of any Brexit impact to be outlined in the new ECB staff forecasts.
2.35pm BST
Final question....
Q: European bank shares are at record lows, so is there a fundamental lack of confidence in the eurozone banking sector?
2.31pm BST
Now we’re DEEP into conspiracy territory...
Q: Your son is a bond dealer in London, Mr Draghi, so isn’t that a conflict of interest?
2.29pm BST
OK, we’re wandering into conspiracy territory now, with a journalist asking Draghi if the ECB is committed to using notes and coins as sole legal tender.
Yes. Of course. There is, says Draghi, looking a little puzzled.
2.24pm BST
Q: Could you elaborate on your comments that a public backstop is needed for banks with non-performing loans?
Draghi says that such a backstop would be “very useful”, but it should be agreed with the Commission.
The longer we have this in place, the less functioning will be the banking sector - and less effective the banks will be at transmitting our monetary policy.
Draghi "NPLs in Italy. It's a big problem,,,,,"
Expect lots of German snark about the colour of Draghi's passport after this. Euro bank stoxx up 1.1 per cent. https://t.co/Hn1nIBzUeh
2.18pm BST
Draghi is asked about the ECB’s presence in the “troika” which oversees eurozone bailouts.
He says it’s not his decision; it’s due to legislation passed by the European Parliament which wanted its expertise involved. The eurozone now has more expertise, but MEPs would have to pass new legislation if they want to get the ECB out of the Troika.
#Draghi wishes to extricate the ECB from the troika: belated but welcome attitude against seeing the central bank as central to the process.
2.12pm BST
Q: What impact will the political crisis in Turkey have on the eurozone recovery?
It’s very difficult to understand how these big geo-political issues will affect the economy, Draghi replies. It’s not obvious how they would be channeled into the euro economy.
2.10pm BST
Q: What message would you like to hear from G20 finance ministers and central bankers when they meet in Shanghai later this week?
We need to hear a message of stability, Draghi replies. Banks and financial institutions are much stronger than before the last financial crisis.
2.09pm BST
The euro has jumped by half a cent as investors react to Mario Draghi’s straight bat to all tantalising questions about future stimulus plans.
2.07pm BST
Hmmmm this might be interesting. Draghi has dangled the idea that governments should step in, if needed, to protect a bank that needs to sell non-performing loans.
This would avoid the risk of “firesales”, in which a bank is forced to sell assets at a big loss.
Oh hello. Draghi raises possibility of public backstops for banking rescues. "We want to avoid firesales"
2.01pm BST
Q: How much damage will Brexit do to eurozone growth? Does Draghi believe that estimates of 0.2%-0.5% knocked off the growth rate are accurate?
We should take such estimates with a grain of caution, the ECB president replies. It is too early to see the financial impact, and we needs to wait and see the eventual outcome of the vote.
1.55pm BST
Europe’s banks are in better shape than in 2009, Draghi declares, partly thanks to the ECB’s efforts to strengthen the sector and boost solvency.
He then embarks on a long explanation about the need to tackle non-performing loans (NPLs) to improve bank profitability.
#ECB watchers who went on July vacation took a wise decision. Today's ECB meeting does not seem to bring any new insights.
Draghi playing his cards very close to his chest here. Few clues of what might happen come September.
1.52pm BST
Twenty minutes into this press conference, and there’s no sign that Draghi is going to pull a rabbit out of his hat.
It appears that the ECB wants everyone to go away and come back in September.
Draghi stresses sentence in introductory statement which is around already for a while. No news. #ECB
#Draghi so far less dovish than expected. Not even a signal for the September meeting. He sounds like PM May: we need a little more time.
1.51pm BST
Q: Could the ECB have already done enough to stimulate the economy and support inflation expectations?
Draghi says there is a difference between public surveys of inflation expectations, and the market-based expectations.
Two chances to drop stimulus hints so far at #ECB. Draghi hasn't taken them. Maybe nothing up the sleeve today.
1.46pm BST
Onto questions:
Q: Did the ECB consider changing the terms of its asset-purchase scheme, to avoid it running out of government bonds to buy?
Draghi really needs to break this bad habit of re-reading parts of his statement in answer to questions. It's just rude.
1.44pm BST
1.43pm BST
As usual, Draghi is urging eurozone politicians to step up the pace of structural reforms, to improve their business environment.
He suggests that governments could boost infrastructure projects, to increase employment and investment.
1.37pm BST
The eurozone recovery faces several headwinds, and the risks remain tilted to the downside, says Draghi.
He cites the UK referendum, slowing emerging markets and the slow pace of structural reforms as key threats to the recovery.
1.35pm BST
President Draghi begins by confirming that the governing council left the key interest rates unchanged, and expects them to stay at present or lower levels for some time.
He confirms that the ECB plans to run its asset purchase scheme at €80bn per month until at least March 2017, or longer if needed to bring inflation back to target.
Following the UK referendum, euro area financial markets have weathered the spike in volatility with encouraging resilience.
Draghi says central banks and "robust" bank regulation kept market stress constrained post-Brexit. No one clapped.
Post #Brexit, #Draghi says #ecb to monitor situation "very closely," reassess stimulus. Euro area weathered 1st shock well
If warranted.... the governing council will act by using all the instruments available under its mandate.
Draghi: If warranted to achieve its objective, the Governing Council will act by using all the instruments available within its mandate
1.30pm BST
Mario Draghi has arrived in the press conference room in Frankfurt, and is posing for a few photos with colleagues.
And we’re off......
1.26pm BST
Here’s a live feed of Mario Draghi’s press conference, which starts in 5 minutes (I’ll try to embed it at the top of this blog too)
1.14pm BST
Naeem Aslam of City firm Think Markets says the ECB was right to leave interest rates unchanged today while it gauges the impact of the Brexit vote:
There was no smoke from the ECB’s gun as the bank has decided to hold its fire as expected. Perhaps, it was the best move because the bank certainly wants to assess the consequences of Brexit which has triggered the need for more QE and dragged the bond yields in negative territory.
The market is addicted to this medicine and most of the boom which we have experienced in the equity market is based on the basis of this cheap funding.
If these liquidity tanks start to run dry, we may start to see the heavy sell off which many have been waiting for....
1.02pm BST
More reaction:
#ECB helds rates steady, as expected. Thing to watch for in pres conf is whether they tweak QE. We think they have to, but will it be today?
*ECB SAYS ASSET PURCHASES TO RUN UNTIL AT LEAST MARCH 2017
Unusual getting released now? Suggests Draghi keen for quick Q&A + hit beach.
12.58pm BST
Here’s some instant reaction to the ECB’s announcement, and predictions about what we might hear from Mario Draghi in 30 minutes:
ECB - No Change - no surprise
ECB teasing us with extra info before presser
Based on additional ECB info, I expect a nice dovish delivery from dear Mario
ECB - let me guess - Brexit adding uncertainty and downside risks to growth. Only potential surprise would be hint at capital key deviation.
12.54pm BST
The European Central Bank has declared that it expects interest rates to remain at their current record lows, or lower, for a long time.
It has also confirmed that its quantitative easing bond-buying programme will run until at least next March.
At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of the net asset purchases.
Regarding non-standard monetary policy measures, the Governing Council confirms that the monthly asset purchases of €80 billion are intended to run until the end of March 2017, or beyond, if necessary, and in any case until it sees a sustained adjustment in the path of inflation consistent with its inflation aim.
Monetary policy decisions: rates unchanged https://t.co/6gv8XZLUPb
12.47pm BST
Newsflash: The European Central Bank has left interest rates unchanged across the eurozone.
Despite the uncertainty created by Britain’s EU referendum, the governing council has decided not to take any immediate steps.
#ECB holds fire...but fireworks perhaps for the press conference in 45mins. Any hints for Sept stimulus & QE bond eligibility
12.29pm BST
Danae Kyriakopoulou of the Centre for Economics and Business Research predicts that Mario Draghi will hint at another stimulus boost after the summer hols.
#ECB meets today.Expect no move, but Draghi to hint at fcast cuts in Sept due to #Brexit & tweaks to QE to expand universe of eligible bonds
Unlikely the ECB will act. I expect EUR bounce on announcement, yet selling once dovish Draghi starts talking
12.15pm BST
There are just 30 minutes to go, until the ECB announces its monetary policy decision.
Reminder, economists are currently expecting no change to the current rates, which are:
no, let me get this right. The bar is VERY low for #ECB surprise today. pic.twitter.com/yQDjKLI9kw
12.10pm BST
Investors have paid to lend money to Spain for the next three years, for the first time ever:
Mad world: #Spain sold 3yr notes w/ yield below ZERO for first time ever. Sold €1.71bn at -0.072%. pic.twitter.com/szJ4sY3zKs
11.48am BST
There’s more on the ECB’s agenda than Britain’s EU referendum, says FXTM Research Analyst Lukman Otunuga:
Although Brexit remains the biggest risk threatening Eurozone’s recovery, there are more challenges to be addressed when the central bank meets later today, such as the troubled Italian banks and the plunging yields on governments’ debt which makes it difficult for the ECB to pursue its €80 billion monthly debt purchases without amending the terms of their program.
Mr. Draghi’s only tool is likely to be his dovish words on opening the door for further easing if economic conditions deteriorate.
11.15am BST
European stock markets have all lost ground this morning, as investors wait to hear from ECB president Mario Draghi.
The main indices are down around 0.5%:
The relatively shallow pullback seen in eurozone markets this morning would seem to indicate a calm atmosphere – given the myriad problems facing the eurozone, and indeed the UK and EU, it seems highly likely that Mario Draghi will seek to soothe frayed nerves with a generally dovish statement.
10.31am BST
More from Jack Lew in Athens:
US Finance Minister #Lew: important that the world no longer worries about a #Greece
US Finance Minister #Lew: there's still work to be done, #debt restructure will follow #Greece
#IMF has been a helpful partner in #Greece's program, says #US Secretary Treasury #Lew
10.29am BST
From Brexit to Grexit...
Over in Athens, US Treasury secretary Jack Lew has urged the Greek government to stick with its bailout plan.
“Putting Greece’s debt on a sustainable path is critical to Greece’s long-term economic health and I encourage all parties to be flexible to successfully conclude this fall’s negotiations.”
US TreasurySec Lew says debt relief for #Greece should be part of a wider comprehensive plan for the Greek economy. pic.twitter.com/JqgPXcU10d
10.20am BST
Peter Rosenstreich, head of market strategy, Swissquote Bank, also predicts that the European Central Bank will leave its powder dry today.
He expects monetary policy will be unchanged, while president Mario Draghi will probably hint at stimulus measures later this year:
With the true extent of the Brexit effect still unclear, and the Euro on the weaker side (due to renewed expectations for a September Fed rate hike), the central bank is under no real pressure to act. Draghi will therefore most likely adopt a wait-and-see approach.
We expect the meeting and press conference to contain warnings that economic downside risks have grown and that the bank remains ready to ease monetary policy further, if necessary.
ECB GC meeting today. We expect no change. Watch for hints of estimation of Brexit impact and for changes to QE to expand eligible bonds
10.13am BST
Britain’s new chancellor, Philip Hammond, has welcomed the £2.2bn drop in UK public borrowing last month:
“These public finance figures highlight the underlying strength of the British economy. Ahead of the referendum monthly borrowing continued to fall, with the deficit in June the lowest it has been since 2007.
“As our economy now adjusts to reflect the referendum decision it is clear we will do so from a position of economic strength.”
9.59am BST
Here’s a great preview of today’s European Central Bank meeting, from Ipek Ozkardeskaya of London Capital Group.
The European Central Bank (ECB) delivers its first monetary policy verdict after the UK’s decision to leave the European Union. At his press conference, the ECB’s President Mario Draghi is expected to comment on Brexit, on low-to-negative sovereign rates in the Eurozone as a result of an out-of-control appetite post-Brexit and the crisis in the Italian banking sector.
The ECB is expected to maintain the status quo at today’s meeting. September’s meeting could signal more monetary stimulus, according to consensus. Not the size but rather duration of the ECB’s Quantitative Easing (QE) programme, as well as the composition of its portfolio are expected to be the major talking points.
As of today, $3.2 trillion worth of Eurozone bonds are yielding below zero; 60% of eligible German bond yields are below the ECB’s deposit rate of -0.40%, which is also defined as the lower limit for the ECB purchases. Digging a bit deeper, the abnormally low sovereign rates could, according to many, push the ECB towards the limits of its bond buying programme sooner rather than later.
#ECB headache in one GIF: government bond yields yesterday versus day before last meeting => QE universe shrinking. pic.twitter.com/GStQtuHkqV
9.50am BST
We also have new UK government borrowing figures.....which show that Britain borrowed £7.8bn to balance the books in June.
That’s £2.2bn less than in June 2015, and the smallest figures for any June since 2007 (just before the credit crunch struck).
First UK public finances data since referendum. Not bad at all https://t.co/oxZuVUpG6N
9.44am BST
Breaking: UK retail sales have fallen at their fastest pace since last December.
Bad weather, rather than Brexit, appears to be to blame.
Yes the wet weather seen in the UK up to recently has seen a fall in clothing and footwear sales so far in 2016. https://t.co/beSSYstJod
UK Retail Sales weaker than expected and negative as consumers shy away in run-up to Brexit #gbp
9.33am BST
The Daily Mail was a big supporter of the Brexit campaign.
But now that the victory is in the bag, its parent company says it’s suffering as nervous advertisers wonder what the future holds:
Daily Mail and General Trust reports 'uncertainty' as a result of Brexit could affect its UK business... pic.twitter.com/iWbPfp3zyY
9.27am BST
Budget airline easyJet has spooked the travel sector with a gloomy financial update and a warning that the Brexit vote will hurt demand.
Currency volatility as a result of the U.K.’s referendum decision to leave the EU as well as the recent events in Turkey and Nice continue to impact consumer confidence.”
9.15am BST
Anthony Cheung of Amplify Trading flags up the key issues on the ECB’s agenda today:
5 key areas to watch with the #ECB today
- Existing programs impact
- Hints to QE extention
- Bond scarcity
- Brexit impact
- Italian banks
The Bundesbank needs to purchase 253 billion euros of debt by the end of this month, but due to the present issuer limit of 33%, the world of eligible assets stand at 216 billion euros.
9.07am BST
It will be a big surprise if the ECB launches new stimulus measures today, rather than waiting until its next meeting in September:
Bloomberg SURVEY: among the 85% of economists expecting more #ECB stimulus, only 3% see it coming at today's meeting (vs 71% for September).
8.45am BST
The boss of William Hill has been abruptly dismounted from his position at the bookmaker.
Related: William Hill ousts chief executive James Henderson
8.32am BST
Analysts at Danske Bank also predict that the ECB will resist the temptation to launch new stimulus measures today.
They predict that it will boost its bond-buying QE programme in September, when they’ll have new forecasts and a better picture of the Brexit impact.
#DANSKEDAILY: All eyes on #ECB. Expect a dovish tone but no easing measures until September https://t.co/p2BW7ukSXh pic.twitter.com/LBL2jk0192
8.28am BST
Brexit is a double whammy for the European Central Bank.
As well as generating economic uncertainty, it could create more political instability in the eurozone.
Political risks loom unusually large, and the British vote on exiting the EU exemplifies the danger which the surge in anti-establishment sentiment presents.
Investment could contract, while private consumption growth will slow. Recent attacks in Nice and the attempted coup d’etat in Turkey could further weigh on confidence.
https://t.co/DbAGWYsyeG #ECB preview: Keeping its options open
8.19am BST
The press pack are already gathering in Frankfurt, where Bloomberg’s inflatable euro looks like it needs a holiday:
Euro feeling deflated outside #ECB. Here 4 @BloombergTV...we'll see if Draghi pumps up stimulus hopes at press conf pic.twitter.com/1NQnzfzGIw
7.59am BST
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Today’s focus will be the European Central Bank’s (ECB) latest monetary policy update from which no change is anticipated but any hints/forward guidance will be much appreciated by markets regarding further stimulus being required in light of the UK’s Brexit vote.
With the BoE having held off this month saying it was too early to react to Brexit, its continental peer may well strike a similar tone today.
Economists predict #ECB will keep interest rates & QE unchanged today with futures pricing showing just a 13% chance of cut to deposit rate
Rather than inject state money directly into Monte Paschi as originally planned, Italy is exploring ways to buyout its bad loans at favourable rates with money from private and state-backed institutions. This would use the existing privately backed fund, called Atlante, and would not need preapproval from Brussels.
The terms of any intervention, however, would be closely watched by Brussels to ensure it involves no hidden state support
#ECB meeting day! #EURUSD in bearish trend below 1.1051 (fib 38.2%). Menu du jour: #Brexit, Italian banks and shrinking EZ sovereign yields
Related: Bank of England report finds economy has not slowed since Brexit vote
Our European opening calls:$FTSE 6708 down 21
$DAX 10133 down 9
$CAC 4376 down 4$IBEX 8567 down 9$MIB 16767 up 3
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