Spain has pulled ahead. Fundamental analysis for 29.09.2014

September 29, 2014

The week began for the Eurodollar on an extremely positive surface. Despite the fact that the Spanish inflation still remains in the negative range, the statistics considerably softened - instead of last month’s -0.5% we saw only 0.2%. Moreover, in Madrid they began to revise forecasts for economic growth - this year's positive trend in GDP is expected to reach 1.3%, and the next 2%. 
Also the creation of 350k new jobs in 2015 is planned, which should help combat the record unemployment. However it is unlikely that in the next few years, the unemployment rate will fall below 20%. Moreover, plans to reduce the deficit completely fell apart - by the year-end figure is likely to stabilize at 5.5%, and only in the next year it is expected to decline to the level of 4.2%. 
In neighbouring France the deficit reduction was also stalled, and by 2016 we can’t expect it to target the European norm of 3% of GDP. Moreover, in Paris and Rome they still insist on a softer approach to cost-cutting, another round of which may lead to a new recession. In his recent speeches, ECB President Mario Draghi also stated the need, among other things, investment spending, which in recent years were mercilessly cut down. 
One of the most significant events of the week will be a meeting of the Governing Council of the ECB in Naples, which will determine the parameters of asset purchases, which Draghi announced at the last meeting. Moreover, the program of asset purchases will work in parallel with the previously neglected mechanism for lending to banks, called TLTRO. Until the end of 2016 it is planned to "siphon" around 1 trillion euro to banks, with the prerequisite for lending to the real sector. 
The greatest number of questions is about the plans of the ECB buying securitized assets. Since the regulator can not accept balance in too risky assets, Draghi called on national governments to the idea of obtaining guarantees for losses, but Berlin and Paris have refused. If they fail to agree, the ECB will have to buy only the most reliable paper the market volume for which is small, that will, of course, affect the effectiveness of the program as a whole. 

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