Weekly reviews

ECB steady ahead of Trump and Brexit

The European Central Bank (ECB) is holding its first monetary policy meeting of 2017 on Thursday. But don’t get too excited, everything will probably stay just the same. And this is why:

For many, New Year is a synonym of setting goals, making radical changes and trying out different things. Not for the ECB. January has kicked off with an intense agenda both in the political and economic scene, and for the central bank authorities that translates into keeping things steady until figured out what is going on.

What’s on the agenda?

Donald Trump inauguration

A large number of market analysts believe this event could be a turnpoint for the so-called post-election rally seen since November 8. Stocks, currency and bond yields amounted big gains since the presidential elections on hopes for tax cuts, industry deregulation and infrastructure spending. The current situation presents similarities to a “buy the rumor, sell the fact” scenario, according to experts. Donald Trump’s words will be carefully analyzed by investors in search for details concerning his economic plan for the immediate future.

UK Supreme Court resolution on Brexit

Brexit it is. The question are when and how. Partly, these issues would be clearer after January 20, when the UK Supreme Court rules to determine whether PM Theresa May needs to get parliament’s approval to trigger Article 50 of the Lisbon treaty and officially start the Brexit process. If the court rules in favour of the parliament, then it all might be delayed for a bit longer.

Italy’s banking crisis

Banca Monte dei Paschi di Siena (MPS) and the endless story of a 28 billion euros of non-performing loans (NPL). After several unsuccessful tries to recapitalize the bank arcs, the situation hasn’t changed much at all. Investors and clients continue to pull out their funds, widening the liquidity problem each day. Yes, the Italian government has approved a bailout to secure the national financial stability but unfortunately, the damage is already done. As for the ECB, this outlines an even bigger problem, investors keeping away from Italian assets of all kinds, which could provoke a serious recession in Europe’s third largest economy.

In the latest minutes, ECB's Governing Council recommended to keep a "steady-hand approach to financial conditions in the Euro area over the period ahead to allow the recovery to mature and strengthen." which considering the events mentioned above, it’s a widely anticipated path.