Following the Brexit vote that tumbled global stock markets down an average of 4-7%, nearly all have not only recovered their initial losses, but in some cases have skyrocketed their markets to new all-time highs.
For many analysts, these equity moves are believed to have been a result of either investors front-running soon to be central bank interventions, or of central banks themselves simply buying outright these markets with newly printed money. And on July 18, at least in Europe, we got our answer.
Yesterday for the first time, the various central banks of the Eurosystem disclosed which bonds the ECB had bought under its CSPP program. Specifically, we broke down the purchases of the Bundesbank, which revealed some of the most prominent public company debt issuers in Europe. However, we were curious to get a more detailed look at what Mario Draghi’s trading desk was spending their time BWICing all day. For that we went to the undisputed master when it comes to tracking what the ECB does in the bond realm (because the ECB is not buying equities just yet), BofA’s Barnaby Martin.
Here is the big picture as revealed in his report today titled “CSPP: Buying Frenzy” - “in just over a month of the Corporate Sector Purchase Programme, the ECB have bought 458 bonds, with virtually no stone left unturned.With the monthly run-rate of buying hovering around the €8.5bn mark, our conclusion for CSPP is, bluntly, that it is too big, too powerful and ultimately too bullish for spreads.”
But the best part was Martin’s answer to the key question: “So what did they buy?” His answer: “In short, almost everything.”
But we don’t think this should be particularly surprising – the weekly CSPP buying numbers continue to suggest a monthly run rate for corporate purchases of between €8bn-€9bn (with the buying pace picking up over the last week). Yet, we think this is too big an amount for a market devoid of supply and thus we continue to believe that CSPP is a very bullish technical for non-financial spreads.What caught our attention on the ECB’s shopping list?
- They bought “topical” credits such as VW, Glencore and EdF.
- They bought “high-yield” credits such as Telecom Italia and Lufthansa.
- They bought “foreign” credits such Bunge and Schlumberger (US), Nestle and ABB (Swiss).
- They bought long-dated bonds (2036s), but they also bought plenty of short-dated bonds. In fact, 35% of the bonds that they bought are negative yielding.
- The Central Bank of Italy seems to be the most “active” central bank thus far, purchasing 43% of their eligible universe (55 out of 127 bonds).
- The Banque de France seems to be relatively “lagging” at the moment, purchasing just 29% of their eligible universe (115 out of 399 bonds). In addition, the BdF has shied away from buying issuers such as Alstom and Legrand.
- The ECB has been involved in primary – buying recent supply from Bunge, Repsol, ASML, Iberdrola, Tennet, Total and Air Liquide.
Ironically, the most popular name seems to be Deutsche Bahn where 12 bonds from the issuer have been purchased. And yet, Deutsche Bahn bonds have some of the most negative yields in the Euro IG market (DBHNGR 18s yield -25bp).
They bought (almost) everything! - Zerohedge
One of the most important things to note in the central bank’s buying of stocks and corporate bonds is that July is one of the lowest months in the markets for volume, both in the United States and in Europe as many investors are out for vacations and holidays. This of course makes it easy for the banks to sway a market in whatever direction they desire, because there are no bids and limited resistance from investors wanting to either sell, or short a market.
Since the middle of July is also the beginning of 2nd quarter earnings reports, it had been a bit confusing to determine where the buying was coming from, especially since early corporate reporting has been either stagnate or less than good… validating that there are no fundamental or technical reasons why equity markets pushed to new all-time highs following the advent of negative bond rates, and the announcement of declines in consumer spending.
Since 2008 and the advent of central bank money printing, there are no such things as markets anymore, only interventions. And just as it is nearly impossible for anyone to ‘fight the fed’ in trying to determine the true value of stocks, so too can it now be said for Europe, as the ECB proved yesterday that they can and will buy everything on paper just to keep the market ponzi scheme going.
Kenneth Schortgen Jr is a writer for Secretsofthefed.com,Roguemoney.net, and To the Death Media, and hosts the popular web blog, The Daily Economist. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.