Possibility of freezing rates benefits banks

The European Central Bank (ECB) met market expectations and cut rates by 25 basis points. This movement was expected, so attention focused on the intervention of Christine Lagarde, the organization’s president. In his statements, he once again made it clear that they are not going to advance the ECB’s monetary policy roadmap and that all movements will depend on data. But they made it clear that they were not going to make a series of cuts. Banks noted that Lagarde had cooled expectations of further declines this year..

Six companies listed on the Ibex 35 registered gains this Thursday following the President’s announcements. The possibility that Lagarde would freeze rate cuts allowed the bank to earn 4.1 billion euros on the stock market. And the ECB’s first sword repeated several times during its speech that they are going to have meeting after meeting and that they are not going to decide anything on rates until the data is received.

Markets came into the meeting expecting three cuts in 2024, but wary that the ECB would take a conservative stance, suggesting the cuts would take longer. The revision of macro forecasts increased these concerns. The ECB believes the economy will grow faster and with higher inflation in 2024 than expected in March.

“We are not committing ourselves in advance to a specific rate path,” the ECB president has repeatedly repeated, adding that in any case the institution is ready to adjust all its instruments within its mandate to ensure that inflation returns. . medium-term goal and maintaining the proper functioning of transmission monetary policy.

Despite the progress made in recent quarters, Lagarde admitted that pressure on domestic prices “remains strong” Because wage growth is strong, it warns that inflation is likely to remain above target well into next year. Indeed, Eurosystem staff’s latest forecasts for headline and core inflation have been revised upward for 2024 and 2025 compared to their March forecasts. Specifically, headline inflation in the eurozone is expected to average 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026.

Let’s go back to the banks, KaishaBank It was this value that increased the most, by 3.87% to 5.2 euros. Bankinter accompanied him on the podium by almost 3% in third place. BBVA, which grew by 2.6%. An increase of more than 2% was registered. Unicaja. Finally, Banco Sabadell and Banco Santander they grew by 1.3%. All these increases resulted in profits of more than 4 billion euros.

The gains come two days after the banking sector suffered a sharp decline in the stock market. At the time, financial sector sources explained that the cuts could be a preview of the ECB’s rate decision, although they clarified that it had already been taken into account. However, this is a widespread correction across Europe.

Market sources explain that there is no specific reason or cause “other than the fall in their profitability (profitability/profitability).” Additionally, they noted that we must take into account that markets are “very hot” and have been all year, and “such corrections are normal, markets need to take breaks from time to time.”

Francisco Quintana, director of investment strategy of the company ING, Assures that Lagarde’s press conference was ambiguous enough not to raise fears that this will be the only reduction this year. Despite his comments about the risk posed by rising profits and wages, and his insistence that decisions would be made in meetings and based on data, markets ultimately viewed the position as neutral.

Quintana considers this meeting a turning point. Not only because rates are being cut (the ECB views this as an “easing of restrictions”), but also because they are being cut even as inflation and immediate economic growth forecasts rise. “That is, This is a turning point because the ECB is looking to the future. and this happened for the first time in several years. Let’s remember that the ECB started raising rates only many months after the US and with very high inflation,” he explained.

Axel Botte, head of market strategy at Ostrum AM (Natixis IM), believes that Christine Lagarde had difficulty justifying the rate reduction at a time when wage growth remains uncomfortably high. “The ECB’s message is difficult to understand because the ECB’s rate cuts are accompanied by quantitative tightening. Despite this, the ECB may cut further in September when it updates its macroeconomic forecasts,” he says.

In turn, Ann-Katrin Petersen, chief investment strategist for Germany, Austria, Switzerland and Eastern Europe at the BlackRock investment institute, believes that The ECB is not going to cut hard or fast. “Investors should take into account the bigger picture: rates in the eurozone are likely to remain structurally higher than before the pandemic,” he says.