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Please be advised that future verbal and written communications from the bank may be in English only. These communications may include, but are not limited to, account agreements, statements and disclosures, changes in terms or fees; or any servicing of your account.

Por favor, tenga en cuenta que es posible que las comunicaciones futuras del banco, ya sean verbales o escritas, sean únicamente en inglés. Estas comunicaciones podrían incluir, entre otras, contratos de cuentas, estados de cuenta y divulgaciones, así como cambios en términos o cargos o cualquier tipo de servicio para su cuenta.

Informamos que as futuras comunicações do banco, verbais e escritas, podem estar disponíveis apenas em inglês. Essas comunicações podem incluir, entre outras, acordos de conta, extratos de conta e divulgações, alterações aos termos ou tarifas, ou qualquer tipo de serviço pertinente à sua conta.

仅此通知,本行即日起发出的口头及书面通信可能将只提供英文版本。这些通信可能包括但不限于账户协议,账单和通知,条款或费用变更;或任何为您账户提供的服务。

Please be advised that future verbal and written communications from the bank may be in English only. These communications may include, but are not limited to, account agreements, statements and disclosures, changes in terms or fees; or any servicing of your account.

Por favor, tenga en cuenta que es posible que las comunicaciones futuras del banco, ya sean verbales o escritas, sean únicamente en inglés. Estas comunicaciones podrían incluir, entre otras, contratos de cuentas, estados de cuenta y divulgaciones, así como cambios en términos o cargos o cualquier tipo de servicio para su cuenta.

Informamos que as futuras comunicações do banco, verbais e escritas, podem estar disponíveis apenas em inglês. Essas comunicações podem incluir, entre outras, acordos de conta, extratos de conta e divulgações, alterações aos termos ou tarifas, ou qualquer tipo de serviço pertinente à sua conta.

仅此通知,本行即日起发出的口头及书面通信可能将只提供英文版本。这些通信可能包括但不限于账户协议,账单和通知,条款或费用变更;或任何为您账户提供的服务。

ECB Goes Big, Market’s True Verdict Awaits

Perspectives

ECB Goes Big, Market’s True Verdict Awaits

Steven Wieting

By Steven Wieting

Chief Investment Strategist and Chief Economist

March 10, 2016Posted InInvestments and Fixed Income

Details (warning, this section is complicated)

- In a wide-ranging package of steps, the larger surprises included the ECB adding non-financial investment grade corporate debt to its asset purchase menu. The overall purchase pace has been expanded to €80 billion per month from €60 billion, or about 9% of Eurozone GDP annualized. The ECB cut its deposit rate 10 basis points to -0.40% and now doesn’t expect further cuts, but will rather focus on other unconventional easing measures. On this latter point, reduced expectations for further rate cuts appear to have caused a weakening in the German bund market today. A consequent negative spillover to world equities is a head scratcher. (I.e. Didn’t market participants claim to fear the consequences of negative interest rates?)

- The ECB expects to launch new “targeted” long-term refinancing operations (TLTROs) with a maturity of four years in June 2016. It said these could include an interest rate as low as the deposit facility (- 0.4%). These new liquidity facilities for banks will replace maturing operations.

- The TLTROs were also likely added to offset market concerns about negative interest rates on bank profitability and future lending activity. In his press conference, Draghi even called attention to potential protections for certain European subordinated bank debt holders in the future.

- Financial market volatility spiked on the ECB’s surprise, which doesn’t settle the issue of predictability for the central bank. The Euro, surprisingly, jumped in value despite an outlook for very sustained base money creation (at a faster pace relative to GDP than seen during the heart of the U.S. Fed’s last QE steps). We are doubtful that an upward revision to deposit rate expectations in the Eurozone can alone account for the large positive move in the Euro (+1.7% vs USD).

 

Takeaways (simple, we hope):

- We don’t believe monetary policy drives long-run real economic growth. Confidence has always played a role in the efficacy of monetary policy in influencing asset prices and any demand impact. This was seen in the extraordinary efforts during 2008/2009 to do more than “push on a string.”

- In a “liquidity trap,” changes in base money are meaningless for asset prices. However, we don’t believe the Eurozone is in a pure liquidity trap. Rather, data show significant short positioning in the Euro already, a condition that ECB easing over the years ahead will likely outlast.

- In the current market context, we believe “fast money” investor positioning has much to do with market reaction to the ECB’s steps today. Assessing the lasting market impact from these steps will take time, just as market euphoria on the day of the Fed’s December 16 tightening step was very fleeting (+1.5% that day for US shares, negative thereafter).