First things first, the pace of PEPP purchases halved to €10.6bn last week, the lowest this year post Christmas break. I'm sure it's all due to Easter and that "significantly higher" purchases are just around the corner.
I mean, seriously. The ECB hasn't even started to front-load PEPP purchases in any meaningful way, and the hawks are already talking about tapering? Here's another Daft Punk reference for you: Doin' it right.
Moving on to the monthly QE data breakdown.
Big picture: ahead of the expected pick-up in PEPP purchases, it's still very much a *Public* Pandemic Emergency Purchase Programme, although corporate debt purchases have increased slightly in Feb-Mar. CP continue to roll off.
In terms of the breakdown of PEPP purchases across countries, there has been no change in composition in 6 months. The ECB is sticking to capital keys almost perfectly. The PEPP's flexibility is no longer being used.
The average maturity of German/core PEPP purchases continues to rise, but it's still below the maturity of the eligible universe (with the exception of Austria).
In terms of PEPP breakdown, note that Supranationals made up for 10.2% of total public debt purchases (€13.4bn) for four months in a row, yet not enough to compensate for a slow start in 2020 (5-7%) despite EU bonds issuance.
Moving to the APP, no big change either in terms of overall pace or composition of purchases. Deviations from capital keys were small in March, leaving the cumulative deviations broadly unchanged.
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🇫🇷 Is France heading to a hung parliament?
A thread with great charts and maps. 🧵
Importantly, French opinion polls have been broadly accurate once again. However, they usually fail to provide robust estimates for the second round of the legislative elections, and this time looks much more uncertain than usual.
As expected, participation surged in the first round to close to 67%, 20 points higher than in 2022, and the highest since 1997.
🇪🇺 Euro area M3 money growth contracted in July, for the first time in 13 years. However, it's important to put things in perspective. 🧵
M3 annual growth continues to be dragged lower by the narrow money aggregate M1 which contracted by a record amount in nominal and real terms.
The contraction of M1 has been driven by the decline in overnight deposits, down 10% YoY. However this has been the result of a shift from overnight to longer-term deposits starting in Q4 2022, with cash seeking higher yields. The money is not 'moving out' of the system.
🇪🇺 Four takeaways from euro area PMIs. 1. Services sector contraction led by Germany, with early signs of labour market weakening. A sign that monetary policy transmission is working.
2. Early signs of stabilisation in the manufacturing sector, but external demand remains subdued.
3. Price pressures have increased somewhat in the German services sector, but no sign of broad-based acceleration in prices. The ECB can be patient.
🇪🇺 Chartstorm on euro area bank lending data (March M3, credit and Bank Lending Survey).
In short: more tightening than expected and "persistent weakening" of loan dynamics.
Likely to cement the case for a step-down to 25bp ECB rate hike(s). 🧵
The ECB's Bank Lending Survey was conducted between 22 March and 6 April, taking into account recent events.
Banks tightened further "substantially" their credit standards for loans to enterprises in Q1 (the largest such tightening since the sovereign debt crisis).
While banks expect a more moderate tightening going forward, demand for loans "decreased strongly" in Q1, with the main drags coming from higher interest rates and weaker investment prospects.
🇪🇺 Euro area money supply growth is declining faster than expected (*before* the recent events).
M1 growth, including currency and overnight deposits, contracted by a record 2.7% in February.
Credit growth remained weak overall. 🧵
In real terms, M1 growth is now down 10% YoY, consistent with a collapse in economic growth. 😱
Now given the starting point for monetary policy and money supply, the old relationships may not hold. A key focus should be on the asset side of the banks' balance sheet.
Bank credit remained weak in February, down for loans to households and stabilising for loans to corporates. That was before the recent events, and the direction of travel looks clear. Question is much banks will tighten eventually (Bank Lending Survey out on 2 May will be key).
🇪🇺 Yes, the ECB is going to hike rates by 50bp today, more than the Fed.
Yes, there's room for markets to re-price the terminal rate higher, above 3.50%.
But will it be a hawkish fireworks? Not so sure. 🧵
The hawkish reality check came in December, when the ECB committed to raising rates "significantly at a steady pace to reach levels that are sufficiently restrictive". The sentence should be adjusted as the ECB gets closer to peak rates.
The ECB is very likely to hint at another 50bp hike in March, but not beyond. There's a case to shift from a "steady pace" to a more moderate pace of tightening beyond March. @lagarde is likely to repeat that future decisions will be data-dependent (staff projections).