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Good morning,
Markets are called higher this morning. This is what's happening today:
Markets are trading higher this morning though trading has been on very low volumes so take movements with a pinch of salt. The markets are waiting for tomorrow's EU Leaders meeting to see if something conclusive will come out from the meeting or whether we will continue to have inconclusive meetings where no conclusion is made. The market is worried that there is a large probability that no conclusion will be reached. Yesterday, Merkel was recorded saying no to Eurobonds in her lifetime. The Germans are against Eurobonds because they do not want to contribute further to the debt burden of other EU countries.
European Central Bank President Mario Draghi is contemplating taking interest rates into a twilight zone shunned by the Federal Reserve. While cutting ECB rates may boost confidence, stimulate lending and foster growth, it could also involve reducing the bank’s deposit rate to zero or even lower. Once an obstacle for policy makers because it risks hurting the money markets they’re trying to revive, cutting the deposit rate from 0.25% is no longer a taboo.
The European recession is worsening, the ECB has to do more. Analysts forecast rates will be cut at the ECB’s next policy meeting on July 5. A negative deposit rate is something they need to consider but taking it to zero as a first step is more likely. Should Draghi elect to cut the deposit rate to zero or lower, he’ll be entering territory few policy makers have dared to venture. Sweden’s Riksbank in July 2009 became the world’s first central bank to charge financial institutions for the money they deposited with it overnight. The Fed rejected cutting its deposit rate from 0.25% last year. With Europe’s debt crisis damping inflation pressures and curbing growth, the ECB may feel the benefits outweigh the negatives.
A rate cut could have an important psychological effect in the current environment. If the deposit rate was cut to zero or lower, it would discourage banks from parking excess liquidity with the ECB overnight, potentially prompting them to lend the cash instead. Almost E800b is being deposited with the ECB each day. On the other hand, a deposit rate cut could hurt banks’ profitability by lowering money-market rates, potentially hampering credit supply to companies and households and reducing banks’ incentive to lend to other financial institutions.
Stock to watch: Standard Chartered
Standard Chartered Plc, the U.K.’s second-largest bank by market value, said it may post high single-digit growth in first-half revenue. Revenue from markets including China, Indonesia and Malaysia is expected to grow by more than 10 percent, the London-based bank said today in a statement. Growth continues to be affected by the weakness of local currencies, the lender said. Standard Chartered, which focuses on Asia, the Middle East and Africa, said in May that revenue is on target for 'double digit' growth this year even though it was curbed by the U.S. dollar’s strength against Asian currencies in the first quarter. The group is “on course” for its full-year targets, according to today’s statement.
For further information on Standard Chartered or other stocks we follow, contact our offices on 25688688.
Good day and happy trading!
Kristian Camenzuli
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