As stocks rally, will ECB programme boost exports?


Heather Mcardle, director Fixed Income Indices at S&P Dow Jones Indices has analysed how the bond markets reacted to the ECB QE programme which started yesterday, noting that Germany, the Netherlands and France’s Sovereign Bond Indices were the biggest movers but that the effect on exports is far from certain. 

After much anticipation, the European Central Bank (ECB) embarked on its quantitative easing plan Monday, actively purchasing government bonds from the Eurozone.  Its attempt to bring down rates further certainly worked in the immediate term, as yields across the board headed south, all in the hopes that lower rates will stimulate a flailing Eurozone.

Europe’s three largest exporting countries, Germany, the Netherlands and France saw some of the most dramatic moves, with The S&P Germany Sovereign Bond Index yield tightening 4bps since Friday, closing Monday at 0.10%, the S&P France Sovereign Bond Index yield tightened 6bps to close at 0.32% and the S&P Netherlands Sovereign Bond Index tightened 6bps to yield 0.16% on Monday.  Italy and Spain, both in the top ten for European exporters, saw bond markets move to a lesser extent with the S&P Italy Sovereign Bond Index tightening 2bps to 0.92% and the S&P Spain Sovereign Bond Index tightening 3bps to 0.79%.

Table showing S&P Sovereign Bond Indices yields since launch of ECB QE programme:

Index Yield
S&P Germany Sovereign Bond Index 0.10%
S&P Netherlands Sovereign Bond Index 0.16%
S&P France Sovereign Bond Index 0.32%
S&P Spain Sovereign Bond Index 0.79%
S&P Italy Sovereign Bond Index 0.92%

Source: S&P Dow Jones Indices, all data as at 9 March 2015

Will the ECB Bond Buyback Program Help European Exports?

One of the hopes of the ECB is that lower rates naturally weaken the euro, making European exports cheaper abroad.  While this has worked for export countries like Germany and France to a certain extent, it doesn’t appear to be their savior.   Germany’s January exports slid to the lowest rate in five months, decreasing by 2.1% on a seasonal adjusted basis, putting a question mark on the recovery for Europe’s biggest economy.   France’s wine and luxury goods sector, while cheaper for foreigners, have been adversely affected by slower economic growth in China and a decrease in corporate gift giving.  Outside of China, the rest of the world is dealing with their own growth issues, and the luxury market may not be in high demand for some time.

The ECB’s bond buyback program has had the expected effect on the euro.  The euro reacted swiftly and is now at a 12 year low.  The hope is now that these levels are enough to give European exporters the jolt they need.