Carmignac’s Sandra Crowl sees economic ‘oxygen’ in ECB moves

Sandra Crowl, member of the Investment Committee at Carmignac Gestion, says the changes to policy announced by the ECB give oxygen to a slowly recovering European economy.

Mr. Draghi today has kept his promise to act.

The ECB has used a combination of policy actions to decrease funding costs, initiate new liquidity, create a new source of fixed rate loan facility, and enhance funding for SMEs.

The full combination is a convincing package that has every potential to give some oxygen to the Eurozone economy. It is designed to achieve the objective of improving the transmission of monetary to the real economy, with a credit growth recovery and a lower Euro as potential outcomes.

The announced cuts to all three key interest rates have been well integrated by market participants prior to the announcement today. Banks will play a key role in passing on these lower rates to borrowers.

In addition, the ECB’s unanimous decision to incorporate a full panoply of potential credit easing measures is most welcome. By creating new targeted, non-mortgage loans through a longer 4 year Targeted LTRO potentially as high as 400 bio initially, but with two other LTROs to follow in September and December, has surpassed expectations. The cessation of SMP programme sterilization allowing 164 bn euros into the system and the extension of full allotments of short term financing to December 2016 will enable easy funding conditions. Lowering collateral requirements to raise asset back security demand from banks and the ‘work in progress’ for the ECB to purchase asset backed securities directly, will give new depth to a small credit market and breadth to the manner in which companies can grow through non-bank forms of finance.

By announcing that this action is not finished yet, Mario Draghi keeps the door open to further non-conventional measures in order to deliver on the ECB objective of inflation below but close to 2%.

Carmignac Gestion has been positioned ahead of the ECB announcement with a strong weighting in the USD, and has maintained significant positions in peripheral sovereign debt. Our large corporate credit book including a strong bias to financial sector bonds will also benefit from lower funding costs and default risk thanks to the measures announced today.


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