The Daily Update - ECB Warnings and Displeasure

Peter Praet, the European Central Bank chief economist yesterday said that the ECB’s  policy of holding interest rates at a record low level over a prolonged period of time could have the potential to endanger stability. Although he does not believe the eurozone is yet at risk from asset bubbles, he believes individual countries need to sanction local measures to head off problems. As it stands Praet believes the eurozone still needs ‘significant stimulus’ and he can see no discernible risk apparent, however that is not to say things can change.

‘Keeping rates low for long periods can raise challenges for financial stability further down the road,” Praet said, adding, ‘In this context, activating macroprudential instruments where needed is essential to ensure resilience, contain pro-cyclical behaviours and prevent the emergence of financial imbalances’. He went on to say ‘There is no evidence of excessive misalignment across asset classes in the euro area right now’ however, ‘there are signs that valuations are stretched in specific market segments’.

And Italy’s new government yesterday agreed a 2.4% deficit of GDP in 2019, which had displeasured Brussels and alarmed markets. As Pierre Moscovici, the European Economics Commissioner put it ‘We don’t have any interest either that Italy does not respect the rules and does not reduce its debt, which remains explosive’.

Italy already has the largest debt in Eurozone after Greece, but hey, what’s close to 131% debt to GDP between friends. Giovanni Tria, the Economy minister and an independent in the coalition government had attempted to reign in the deficit to 1.6%, however with no luck after it was rumoured he would be ‘replaced’ if he didn’t come into line. At the time of writing Italy's 10 year sovereign debt was yielding 3.17%, up 29 basis points from market opening.

Still Luigi Di Miao, the joint deputy prime minister seemed chuffed with the outcome. In a message on his Facebook page (which seems the norm these days) he said ‘Today is a historic day! Today Italy changes! For the first time the state is on the people's side. For the first time it is not taking away, but giving’.

Not to worry, I’m sure the next generation will be more than happy to pick up the tab!

Please read this important information before proceeding. It contains legal and regulatory notices relevant to the information on this site.

This website provides information about Stratton Street Capital LLP ("Stratton Street"). Stratton Street is authorised and regulated by the UK's Financial Conduct Authority. The content of this website has been prepared by Stratton Street from its records and is believed to be accurate but we do not accept any liability or responsibility in respect of the information of any views expressed herein. The information, material and content provided in the pages of this website may be changed at any time by us. Information on this website may be out of date and may not be updated or removed.

The website is provided for the main purpose of providing generic information on Stratton Street and on our investment philosophy for the use of financial professionals in the United Kingdom that qualify as Professional Clients or Eligible Counterparties under the rules of the United Kingdom Financial Conduct Authority (the "FCA"). The information in this website is not intended for the use of and should not be relied on by any person who would qualify as a Retail Client. Products and services referred to on this website are offered only at times when, and in jurisdictions where, they may be lawfully offered. The information on this website is not directed to any person in the United States. The provision of the information on this website does not constitute an offer to purchase securities to any person in the United States (other than a professional fiduciary acting for the account of a non-U.S person) or to any U.S. person as such term is defined under the Securities Act of 1933, as amended.

The website is not intended to offer investors the opportunity to invest in any Alternative Investment Fund ("AIF") product. The AIFs managed by Stratton Street are not being marketed in the European Economic Area ("EEA") and any eligible potential investor from the EEA who wishes to obtain information on the AIFs will only be provided with materials upon receipt by Stratton Street of an appropriate reverse solicitation request in accordance with the requirements of the EU Alternative Investment Fund Managers Directive ("AIFMD") and national law in their home jurisdiction. By proceeding you confirm that you are not accessing this website in the context of a potential investment by an EEA investor in the AIFs managed by Stratton Street and that you have read, understood and agree to these terms.

No information contained in this website should be deemed to constitute the provision of financial, investment or other professional advice in any way. The website should not be relied upon as including sufficient information to support any investment decision. If you are in doubt as to the appropriate course of action we recommend that you consult your own independent financial adviser, stockbroker, solicitor, accountant or other professional adviser. Past performance is not necessarily a guide to the future. The value of investments and the income from them may go down as well as up. An application for any investment or service referred to on this site may only be made on the basis of the offer document, key features, prospectus or other applicable terms relating to the specific investment or service.

Where we provide hypertext links to other locations on the Internet, we do so for information purposes only. We are not responsible for the content of any other websites or pages linked to or linking to this website. We have not verified the content of any such websites. Such websites may contain products and services that are not authorised in your jurisdiction. Following links to any other websites or pages shall be at your own risk and we shall not be responsible or liable for any damages or in other way in connection with linking.

By using this site, you should be aware that we may disclose any information that we hold about you to any regulatory authority to which we are subject, or to any person legally empowered to require such information.

This website uses cookies to improve user experience, by clicking the "I Accept" button below means you consent to the use of cookies on our website.