Bruno Verstrate, CEO, Lakefield Partners, on the line with CNBC-TV18 from Zurich, says the ECB still has leeway to be very accommodative on the monetary policy, especially after the Italian elections.
Fairly decent gain can be seen in the European indices, which is really a rub-off from the good data that came in 24 hours ago, both from the euro zone as well as from the United States. The ISM non-manufacturing index came in more positive, as well as expectations are that there will be some positive noises made by the central bankers when they meet. The European Central Bank (ECB), the Bank of England (BoE) and the Bank of Japan (BoJ) are meeting tomorrow.
Bruno Verstrate, CEO, Lakefield Partners, in an interview to CNBC-TV18 from Zurich, says the ECB still has leeway to be very accommodative on the monetary policy, especially after the Italian elections.
Here is an edited transcript of the interview.
Q: Is there any expectation that the central bankers are going to abate this rally that is underway in the markets. What are you expecting from them tomorrow?
A: The ECB still has leeway to be very accommodative on the monetary policy, especially after the Italian elections. There is very little that they can do apart from stimulating the economies even more. I don’t think that there will be any braking from the ECB at this stage.
The currency wars, although they are not admitting it for logical reasons, do play a role in the monetary policy. They would not want to see the euro rallying big time against the major trading partners. So, as such, there will be nothing done by the central bankers to stop the rally. One has to say that in Europe, the earnings were not of high quality as they were in the United States.
Q: You expect Italy to find a mention? I mean it is unlikely that political instability in the ECB speech tomorrow will find a mention. This is because the markets are looking for some kind of supportive statement from the central bankers although their options are limited.
A: The credibility of the ECB has clearly been confirmed after the Italian elections, whereby we did not see that much of a spread widening versus the German Bunds, for example. So, if they can confirm the trust that the markets have in them, that will be an extremely good job. I do not see much change in their language.
The inflation rate was quite good. So, there is some space to add some breathing room. They might eventually do that, but they will try to postpone that as long as possible just to have some ammunition left in case the crisis comes back.