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When In Doubt, Wear Red

24 January 2019 by jbchevrel

Despite President Draghi wearing a red tie today at the ECB press conference, he failed to sound hawkish. But more importantly he also failed to mention any potential discussion around an extension of the TLTROs for Eurozone banks (neither in statement nor presser), something that some strategists/market participants had expected/hoped for. As a result, this session saw a choppy price action in the financial space, with iTraxx Senior Financial index trading in a 5.5bp wide range, vs just 2.5bp for iTraxx Main. In particular, the ECB presser saw the index revert from tighter -4bp on the day to +1bp, finally closing in at -1bp. DB has been clearly outperforming throughout the session (-10bp intraday, closed -5bp and -40bp over the past 2 months) on renewed headlines this morning, in the sense of a potential merger with CMZB. FAZ reported that the German government (MOF Scholz and deputy MOF Kukies) has reportedly been in talks with Cerberus (has stakes in both DB and CMZB). Kukies sounds favourable to such a merger, as he sees an urgent need to build a strong lender in Germany before the next downturn. That is not clear yet how a combination of two troubled lenders would make a stronger one, which is why the regulator (BaFin) does not sound favourable to this merger yet.