The resignation of Jens Weidmann as president of the German Bundesbank augured a bullish uncork in the bags, but the cold reaction of the market left open some questions.
The DAX closed flat on Wednesday and the IBEX 35 registered timid increases of 0.2 percent, more due to the positive tone of Wall Street. Furthermore, the yield on the German bond barely fell from -0.1 percent to 0.12 percent.
Nicknamed the ‘Doctor No’ for his opposition to expansionary monetary policies, Weidmann he followed the tradition of German bankers and left office before his term expired.
Following in the footsteps of other influential German bankers, such as Axel Weber (former President of the Bundesbank) or Jürgen Stark (Former ECB member), Weidmann harshly criticized the ECB’s expansionary policies and sent a serious warning about the dangers of inflation.
The market looks to Weidman and the December meeting of the ECB
What in principle should have been clearly bullish news tiptoed through the market.
The sources consulted by finanzas.com linked this reaction with the possibility that Weidmann has not said the last word and a bullet is kept in the chamber. In addition, it is not yet clear what color the new government will be in Germany.
The point is that the German banker has not yet left and will participate in the ECB’s monetary policy meeting in December. This is when the end of the Pandemic Debt Purchase Program (PEPP) will be officially announced.
In addition, investors hope that “at the same time that the end of this program is announced, there will be some kind of partial compensation,” he said. Natalia Aguirre, director of macroeconomic analysis at Renta 4 Banco.
Possible obstacles to greater monetary support
This compensation could well be through an increase in the previous bond purchase program (APP). Or by some other program in which there were selective purchases of debt.
In other words, the ECB bought bonds at its discretion, without taking into account the capital key of each country. This is where the doubts begin.
“What Weidmann could do in the last meeting is to put obstacles of some kind “ Aguirre said. You may be against either the expansion of the APP program or another program that offers selective purchases.
Rising inflation expectations, group immunity and the economy’s return to pre-crisis levels before the end of the year creates “compelling arguments to start reducing asset purchases,” IG analysts said. .
“Perhaps the decision to do the latter will be the final success of Weidmann as President of the Bundesbank at the December meeting of the ECB ”, pointed out these experts.
Weidmann has not said the last word
The feeling among experts is that Weidmann He has not yet said the last word.
“Its biggest impact on the ECB can be felt at the December meeting. And who knows, he might even reappear soon in a more influential position in German policymaking, “Bloomberg Economics analysts told finanzas.com.
In recent years, Weidmann he has been more diplomatic about his stance on the euro crisis. The reason is that he positioned himself to preside over the ECB, although Christine Lagarde won the game. Because, “Weidmann may think he has nothing to lose”, Explain the sources consulted.
What is also true is that the stock markets have too many unknowns to discount, starting with the color of the new German government. First, we will have to deal with inflation, the energy crisis and its impact on business accounts.
“The market has taken a bit of a surprise but right now other things are being traded, such as the results of the companies,” he said. Jose Maria Luna, Managing Partner of Luna Sevilla Asociados. They are too many variables to throw the bells on the fly.
Earrings in the color of the new German government
In the opinion of David Ardura, chief investment officer at Finaccess, “it is possible that Weidmann leave your mark in December but the market’s reaction can be explained because in the end great things will not change ”. Especially when the formation of the government is pending.
In the ecosystem of Bundesbank, as in the ECB itself, there is a delicate balance between what is known in slang as “hawks and doves.” Or what is the same, bankers more partisan of the hard line, like Weidmann, and others more prone to lax policies. Everything is in the hands of the new Executive.
A government of Scholz with the Social Democrats as the main coalition party “could increase the pressure to be less aggressive,” he said. Wolfgang Bauer, gestor de M&G Investments.
If this were the case, the balance of power within the ECB’s Governing Council would shift further towards less tough stances, “making a departure from the current ultra-expansive monetary policy in Europe less likely,” Bauer said.
The unknowns left by Weidmann’s march
In this scenario, there would be very low interest rates and high volumes of asset purchases, which would particularly benefit peripheral risk assets. These are questions that have yet to be clarified and depend on complicated negotiations in Germany.
It is also unclear what the Weidmann. His ‘most influential’ days could be ahead if he has an upcoming role with the new government, “he said. David Powell, analista de Bloomberg Economics.
“He spent five years in the chancellor’s office before becoming president of the Bundesbank and you may want to go back to Berlin ”, added this expert. One more derivative that the markets will speculate on.