Week in Review (13 September)

ECB unleashes the bazooka

As anticipated in previous reports, Draghi has followed up on the sentiments expressed during the July Governing Council meeting where the prevailing view was that the Governing Council needed to “convey its determination to act if the inflation outlook failed to improve, in line with its commitment to symmetry in the inflation aim.”

By inter alia cutting the deposit rate to -0.5% and announcing an open-ended €20 billion a month bond purchasing programme, Draghi did not disappoint. During his press conference Draghi indicated that there would be a by and large the same asset mix in the QE programme. This would see government and public sector bonds (PSPP) comprise €16 billion or 80% of purchases, corporate bonds comprise €3 billion or 15%, covered & asset backed bonds comprise €1 billion or 5% of the total. Given that the PSPP element will likely run out of eligible bonds in 9-12 months, market participants will likely expect an increase in issuer limits in the coming months. The decision was contentious with significant elements of the Governing Council, including representatives of France, Germany and the Netherlands opposing the extent of the easing package.

Italy secures economic affairs portfolio

Right after the Italian Senate voted the confidence in his government, Italian PM Giuseppe Conte flew to Brussels on Wednesday to meet Ursula Von der Leyen following her appointment of former Italian PM Paolo Gentiloni as Economic affairs Commissioner. Italy is expected to make the most of the political goodwill it has gained with Salvini’s exit by demanding more flexibility to increase infrastructure spending and spur economic growth. Gentiloni will also demand increase burden sharing when it comes to migration.

Government jobs in Italy finalised

After the Italian government was sworn in last week by the President of the Republic and approved by both chambers on Monday and Tuesday, on Friday the Council of Ministers gave its green light to the appointment of the Deputy Ministers and undersecretaries, who will be sworn in by the President of the Republic on Monday. Discussions over the nominations were stalled both within M5S and PD until Conte requested to accelerate the procedure in order to have the names by today.

In many instances, Deputy Ministers and undersecretaries hold similar powers to Ministers. Investors will be slightly perturbed therefore by the nomination of M5S’ Giancarlo Cancellieri as Deputy Minister at the Ministry of Transport and Infrastructure. Cancellieri is a disciple of Luigi Di Maio and is not expected to take a pragmatic approach to motorway concessions or the high speed railway line between Lyon and Turin (TAV).