The European Central Bank will decide on Thursday if more than €1 trillion ($1.1tn/Dh4tn) in asset purchases and a generous lending plan are enough to keep companies and households afloat during an historic slump.
Most economists predict the Governing Council will pause after a series of actions to support the economy since its last official meeting to see whether governments can agree on comprehensive fiscal support. A minority including Goldman Sachs though expect a bump up in monetary stimulus immediately.
President Christine Lagarde is likely to reiterate her pledge to do everything necessary as most of the 19-nation euro members face more severe recessions this year than during the global financial crisis. Investors will be listening carefully, after a verbal slip-up in March sent bond markets tumbling.
The ECB will announce its decision at 3.45pm UAE time, and Ms Lagarde’s virtual briefing begins 45 minutes later.
With policymakers showing little appetite for further interest-rate cuts – the deposit rate is already at -0.5 per cent – economists polled by Bloomberg expect the ECB to boost its €750 billion pandemic bond-buying plan by another €500bn at the September meeting. That would take this year’s tally across all programs above €1.5tn.
But size isn’t the only option to make the plan more powerful. Citigroup’s Arnaud Mares, a former adviser to Ms Lagarde’s predecessor Mario Draghi, has suggested policymakers could ditch a rule on how purchases are distributed across the bloc, a move that would allow them to respond more flexibly to market shifts.
Another question is whether junk-rated debt will become eligible for buying, after the ECB said it would temporarily accept some of it as collateral.
Even though updated economic projections would not be available for another five weeks, Ms Lagarde will be quizzed about the ECB’s latest view. Last week, she told European leaders euro-area output could drop by as much as 15 per cent this year.
Just before taking their decision, policymakers will receive an initial estimate for the first quarter. A Bloomberg survey points to a 3.7 per cent contraction, with forecasts for the current period suggesting an even steeper slump.
Much will depend on how quickly governments will ease restrictions. Bloomberg Economics expects the economy to shrink 8.1 per cent in 2020, with risks skewed to the downside.
Investors have zoomed in on Italy, the European epicenter of the pandemic, where government debt could climb above 160 per cent of output this year.
The country was dealt a blow on Tuesday when Fitch surprisingly downgraded its credit rating to one level above junk, citing debt-sustainability concerns. Separately, S&P Global Ratings affirmed its assessment.
So far, bond purchases by the central bank and a more conciliatory approach by Prime Minister Giuseppe Conte to EU efforts have prevented bigger spikes in yields. Yet the situation could deteriorate quickly if financial market see stimulus measures falling short.
The ECB’s actions – both on the monetary-policy and the supervisory fronts – are focused on ensuring bank lending would not dry up. Loan growth to companies surged in March as businesses rushed to ensure they can pay rents and wages during the lockdown.
After the ECB allowed banks to temporarily use financial cushions built up after the last financial crisis, they got another lifeline from the European Commission on Tuesday, which proposed a series of tweaks to further ease the burden.
With many of their borrowers in trouble, lenders are still expecting major losses in the wake of the pandemic. Economists at Banque Pictet encouraged officials to consider cutting the interest rate on long-term loans. It’s already below the ECB’s deposit rate, meaning banks are effectively paid by the central bank to extend credit.
The ECB has not received much support from politicians in the form of a joint response. While large in scale, national fiscal stimulus has varied widely across the euro area, raising concerns that the recovery – once it arrives – will be uneven.
“A rebound is likely in 3Q, reflecting ample fiscal support in some countries and a return to work for many workers in the more flexible segments of the labor force,” according to Bloomberg economists.
The EU leadership has only agreed on a rough outline for a reconstruction plan, leaving unresolved the key issue whether it should be based on grants or loans to member states. There is also concern they are relying too much on leveraging their own contributions with private investments.
The press conference gives Ms Lagarde an opportunity to send another message to wavering politicians, after she warned them last week that they risk doing too little, too late.
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Price, base / as tested Dh137,000 / Dh189,950
Engine 3.6-litre V6
Gearbox Eight-speed automatic
Power 280hp @ 6,200rpm
Torque 360Nm @ 2,750rpm
Fuel economy, combined 11.7L / 100km
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The specs
Engine: 2.0-litre 4-cyl turbo
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Torque: 320Nm at 1,750-4,000rpm
Transmission: 6-speed auto
Fuel consumption: 8.7L/100km
Price: Dh133,900
On sale: now
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
SPEC%20SHEET%3A%20APPLE%20M3%20MACBOOK%20AIR%20(13%22)
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What's in the deal?
Agreement aims to boost trade by £25.5bn a year in the long run, compared with a total of £42.6bn in 2024
India will slash levies on medical devices, machinery, cosmetics, soft drinks and lamb.
India will also cut automotive tariffs to 10% under a quota from over 100% currently.
Indian employees in the UK will receive three years exemption from social security payments
India expects 99% of exports to benefit from zero duty, raising opportunities for textiles, marine products, footwear and jewellery
The specs
Engine: 5.0-litre supercharged V8
Transmission: Eight-speed auto
Power: 575bhp
Torque: 700Nm
Price: Dh554,000
On sale: now
Killing of Qassem Suleimani
Killing of Qassem Suleimani
The lowdown
Badla
Rating: 2.5/5
Produced by: Red Chillies, Azure Entertainment
Director: Sujoy Ghosh
Cast: Amitabh Bachchan, Taapsee Pannu, Amrita Singh, Tony Luke
