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Goldman Sachs: “The hawkish turning point of the ECB? Good news for Italy and Europe “

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Investors should stop worrying about the “Hawkish turning point” of the ECB: they are convinced of it Sharon Bell and Peter Oppenheimer, Goldman Sachs strategist. On the contrary, they should love it.
“The sharp change in the interest rate scenario, especially in Europe, is a sign that the problems that have plagued Europe in the last cycle – low nominal GDP growth, disinflation, no earnings – are finally decreasing”, they said. the two experts wrote in a note Tuesday.

The US bank team is optimistic about the impact of rising yields on the sustainability of public finances in highly indebted countries, such as Italy, saying higher borrowing costs will be offset by an expanding economy.

“We continue to foresee one strong growth in Europe, including Italy and Spain, that will eventually contain spreads close to current levels as we approach the first tightening, ”the strategists wrote, adding that Italian equities are already trading at a discount.

In a report published earlier this year, the US bank estimated that Italian GDP would increase by 4.4% this year and by 2.2% next.

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Stock exchanges: “Betting on banks”

For the team of Goldman Sachs, higher rates also mean investors should stay overweight in attractively valued stocks like European banks. While less stimulus could slow growth and damage banking instincts, a hypothesis that is not under consideration now.

“Also the value sectors, which were once low-growth and very low-yielding, are showing improvement in fundamentals, particularly the energy and tlc sectors, ”according to the Goldman note. On the other hand, higher rates could create problems for expensive stocks focused on technology, digital economy and renewable energy, as well as for companies with weak balance sheets ”.

Goldman Sachs estimates on ECB rates and spreads

By shifting the focus to the ECB, Goldman Sachs economists now predict two rate hikes of 25 basis points in September and December 2022. The new fair values ​​of Goldman Sachs, assuming that the ECB will move as expected, are 145 basis points for the 10-year BTP-Bund spread and 75 basis points for the 10-year Bonos-Bund spread (ie the difference between Spanish and German bonds).

As the market currently trades close to these values, there is little hope of avoiding the widening of spreads. “We expect one continued short-term pressure on spreads, with the BTP-Bund spread likely to approach 175 basis points “before the ECB’s March meeting,” Goldman Sachs points out.

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