It’s been an especially stormy start to the year for the UK, which finds itself at ground zero for the spread of a new and highly infectious strain of the coronavirus, even as it struggles to cope with withdrawal from the European Union’s single market and customs zone.
Yet the UK’s financial markets are performing relatively respectably year-to-date as investors focus on the UK’s strong vaccination performance and look ahead to the possibility of economic reopening and recovery.
If anyone still had doubts, this week European Central Bank meeting was a convincing reminder that negative interest rate policies and quantitative easing are here to stay.
For the eurozone banking sector, this is a triple hit to profitability as reserves are taxed instead of being remunerated, interest rates are low and the yield curve is flat.
A modest consolation is the extension of the -1% rate on the ECB's long term refinancing operation (TLTRO) from June 2021 to June 2022. The money banks can earn by borrowing from the ECB more than compensates for the cost banks have to pay on heir reserves at the ECB.