Dovish ECB would continue to be supportive for the periphery – Danske Bank

According to Jens Peter Sørensen, Chief Analyst at Danske Bank, a dovish ECB would be positive for the periphery relative to core, especially if the ECB continues with its ‘silent’ but modest deviation from the capital key, where it buys more in, for example, Italy and Belgium.

Key Quotes

“A number of structural factors are long-term positives for the periphery (especially Spain and Portugal).

- The rating cycle has changed as we saw last week, when Greece was upgraded by Fitch.

- The improvement in growth is supportive for the public finances. Hence, the supply of government bonds is likely to decrease.

- The low yield environment is still pushing investors further out on the curve.”

“However, Italy has not seen the same kind of tightening as, for example, France and Spain given the political uncertainty and banking sector problems as well as a very modest growth outlook. Italy is the only country on negative outlook among the 19 Eurozone countries. All the other Eurozone countries are either on stable or positive outlook.”

“The 10Y Spanish-German spread should bounce back to 100bp, which seems to be lower bound until Spain is moving back into the single-A rating like, for example, Ireland.”