Year to date, the main Italian index, FTSEMIB, is down more than 20% (Price return, €) and has underperformed the broader European market by c22%. This has been driven by concerns surrounding the high levels of Italian gross non-performing loans (NPLs) in the banking system and the pending Italian Referendum
“A Quantitative Easing (QE) programme, as decided by a central bank, is a plan that consists of buying large quantities of assets whatever the price is. As a consequence, prices lose their precious information content that normally enables investors to switch meaningfully between different asset classes”, says Yves Longchamp, Head of Research di ETHENEA Independent Investors (Schweiz) AG.
As generally expected, last week’s European Central Bank (ECB) meeting unfolded without any surprises; nothing new under the sun, so let’s enjoy it while the summer is here and continue to consider Euro corporate bonds. Such a cool, calm attitude suits the need to analyse the consequences of Brexit on the Eurozone. Mario Draghi also had a message that the Central Bank’s actions are but one tool in a whole kit of tools available to support growth and employment; other policy areas need to act swiftly, too.
Brexit introduces fresh headwinds to growth – headwinds that are reinforced by rising political risks in key EU countries. While inflation should start to rise soon, we still expect additional ECB action and see prospects for some fiscal easing.
The UK referendum on European Union membership saw 51.9% of voters favor leave, surprising a market that had become confident of a remain outcome over the last few days. Thus far, financial markets have not shown widespread panic, just weakness and increased volatility.