Halister News

(Bloomberg) -- Europe “Target2” imbalances are on the rise and approaching peaks seen in 2011 and 2012, suggesting the impact of ECB QE may be the opposite of what had been hoped, Capital Economics analyst Jack Allen writes in client note.

• Data shows that banks in Europe’s periphery are buying bonds issued by core countries; purchases of non-Italian government bonds by Italy’s banks are equal to around a third of the increase in the country’s Target2 deficit, since March 2015
• German banks though appear to have sold more non-German EGBs since the start of QE
• This suggests ECB’s ability to stimulate the region’s most troubled economies is limited and that growth and underlying inflationary pressures in those countries will remain weak
• NOTE: Rising imbalances reflect a fall in private liquidity as yields remain unattractive and amid doubts about the future of the union, and hint at ECB policy reaching its limits, Commerzbank analysts wrote on May 25