ECB expands pandemic support to over $1.5 trillion

LONDON (Reuters) – The European Central Bank beefed up its bond-buying programme on Thursday in its latest effort to support a euro zone economy pummelled by more than two months of shutdowns due to the coronavirus pandemic.

HIGHLIGHTS:

** ECB increases size of its Pandemic Emergency Purchase Programme (PEPP) to 1.35 trillion euros ($1.52 trillion)

** ECB leaves benchmark Deposit Facility Rate at -0.5%

** ECB President Christine Lagarde will hold an online news conference at 1330 GMT

MARKET REACTION:

** Euro-zone stocks turned positive briefly after the PEPP increase, led by banks

** The euro EUR=EBS reversed earlier losses and was on course for an eight-day winning streak against the U.S. dollar

** Ten-year German bund yields DE10YT=RR eased around 2 basis points

COMMENTS:

JAI MALHI, GLOBAL MARKET STRATEGIST AT J.P. MORGAN ASSET MANAGEMENT:

“This highlights the ECB’s commitment to strengthening the recovery, and should act as a strong support for peripheral bond markets in particular. While there are still hurdles ahead, most notably in reaching unanimous agreement on the form of the recovery fund, the European policy response has taken huge strides forward in a very short time period.”

“The eurozone may well emerge from the COVID-19 recession more quickly than the US and UK, and at the same time having made meaningful steps forward in structural integration. In this context it’s not surprising to see European stocks rallying on the back of the news.”

MIRABAUD SECURITIES:

“Fears ahead of the meeting were that only a €250bn uplift to PEPP would come vs expectations for €500bn…. The additional €100bn over expectations should have been met with more applaud. More meaningful is the switch up to allow PEPP roll-off money to be reinvested, which means the capital key can be stretched allowing more buying of Italian, Spanish or Greek paper for example.”

CEM KELTEK, CREDIT STRATEGIST AT COMMERZBANK IN FRANKFURT:

“I think overdelivering on the PEPP pretty much overrode any disappointment from bypassing fallen angel purchases for now. Spreads should remain sensitive to comments on the issue during the press conference though.”

MARCHEL ALEXANDROVICH, SENIOR EUROPEAN FINANCIAL ECONOMIST, JEFFERIES

“The ECB exceeds market expectations and boosts PEPP by 600 bn euros. It also changes forward guidance to make QE effectively open-ended by saying the purchases will run until June 2021. This response shows the scale of the challenge facing the ECB to get the economy through this recession and to get inflation back up to 2%.”

HINESH PATEL, PORTFOLIO MANAGER AT QUILTER INVESTORS:

“While it is no surprise to see interest rates left untouched, we were expecting less of an increase in the pandemic bond buying programme given economies across Europe are beginning to reopen and the worst of the crisis appears to be in the rear-view mirror. Needless to say this should be another positive for risk assets, at a time when equities in particular have already rallied strongly from their lows in March.”

HOLGER SCHMIEDING, CHIEF ECONOMIST AT BERENBERG:

“By emphasising again that it ‘will conduct net asset purchases under the PEPP until it judges that the coronavirus crisis phase is over’, the ECB provides a de facto financial backstop for the Eurozone economy, including an implicit promise to react forcefully if the tail risk of a second wave were to materialise.”

ING, CHIEF ECONOMIST, EUROZONE AND GLOBAL HEAD OF MACRO, CARSTEN BRZESKI:

“Today’s decision should dent any future speculation about whether or not the ECB is willing to play its role as the lender of last resort for the Eurozone.”

“The ECB just added to the Eurozone policy fireworks of recent days… After the announcement of the European Recovery Plan and last night’s powerful German fiscal stimulus package, the ECB has added to real stimulus fireworks.

(This story has been refiled to correct story link in first para)

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