MacroScope

Goldman thinks market’s disappointment with ECB is premature

August 2, 2012

Financial markets on Thursday were starkly¬†disappointed with the European Central Bank and its president, Mario Draghi. He had promised recently to do everything in his power to save the euro and yet announced no new bond-buying at the central bank’s latest meeting. Riskier assets sold off and safe-haven securities benefitted.

But Francesco Garzarelli of Goldman Sachs, Draghi’s former employer, has a different take on the matter:

We see a material change in the central bank’s approach to the crisis, and a coherent interplay between fiscal and monetary policy. The underwhelming part of today’s announcements lies in the lack of details on the asset purchases and other measures to support the private sector. But it appears that these will have more structure around them than the SMP (Securities Markets Program).

Since June 29, Garzarelli has recommended long positions in five-year Italy, Spain and Ireland bonds. He reiterated that stance going into the ECB meeting.

Garzarelli said the conditionality associated with European Financial Stability Facility (EFSF) procedures seems “inevitable given the trend towards more intrusive cross-country scrutiny” over fiscal and structural policies.

The political reaction of Italy and Spain will be very important in coming weeks.

 

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