MNI US Open: BoE's Bailey Sees "Issues" With UK Negative Rates

EXECUTIVE SUMMARY:

• BOE'S BAILEY SAYS THERE ARE "LOTS OF ISSUES" WITH NEGATIVE RATES
• MERKEL EXPECTS GERMAN LOCKDOWN TO LAST UNTIL EARLY APRIL (BILD)
• INFLATION NOT DEAD, BUT NO IMMINENT THREAT: ECB'S SCHNABEL

FIG.1: UK 2021 Rate Cut Expectations On A Knife's Edge

BBG, MNI

NEWS:

BOE (RTRS): Bank of England Governor Andrew Bailey said on Tuesday there were "lots of issues" with cutting interest rates below zero and such a move could hurt banks." In simple economics and maths terms, there is nothing to stop it at all," Bailey said when asked about negative rates after an online speech to the Scottish Chambers of Commerce. "However there are a lot of issues with it." Bailey said negative rates - the subject of a feasibility review by the BoE - would complicate banks' efforts to earn a rate of return, potentially hurting their lending to companies, and that it was not easy to draw a direct parallel with similar action in the euro zone.

GERMANY/COVID (BBG): Germany still "needs eight to 10 weeks of hard lockdown measures," Bild reports German Chancellor Angela Merkel as saying, citing people who took part in a meeting of the CDU/CSU party.

ECB: Inflation is not 'dead' and there will likely be some upward pressure on prices in 2021 as the downward impact from energy prices and the German VAT cuts dissipate, ECB Executive Board member Isabel Schnabel said in an interview published Tuesday. However, despite the unprecedented amounts of monetary stimulus in recent times, Schnabel isn't yet concerned about high price levels. "At present there are no indications that we need to be concerned about inflation being too high. We see a pronounced weakness in demand. There is a danger that the crisis will have a scarring impact on the labour market. All in all, the main problem is probably that economic demand is too weak, rather than that capacity bottlenecks may arise, which is why prices are more likely to rise too slowly," she told Austria's Der Standard.

ITALY (BBG): Snap elections would be a disaster for Italy, Nicola Zingaretti, leader of the Democratic Party, a member of Prime Minister Giuseppe Conte ruling coalition, says in an interview on Sky TG24 on Tuesday. " I still hope there won't be a government crisis, it would be a serious political mistake that would penalize Italy, a tunnel with no way out in sight"

EUROZONE DATA: The household savings rate in the Eurozone declined by 7.3pt to 17.3% in Q3 2020, down from the 24.6% seen in the second quarter. However, Q3's reading is still the second largest since the series began in 1999. The savings rate is 4.4pp higher than a year ago. The decrease was driven by a sharp recovery of individual consumption expenditure (+13.9%) as economies reopened through the summer months, while household's gross disposable income increased at a slower pace (+3.9%).

JAPAN DATA: Household sentiment in Japan rose in December from three months ago for the first rise in 10 quarters although the level remained low, the Bank of Japan's quarterly consumer survey released Tuesday showed. The BOJ's diffusion index to gauge households' sentiment on current economic conditions rose 5.4 points to -70.2 in December with more people saying sentiment had worsened judging from incomes, media reports and the business performance of employers. Still, it was an improvement from September when the index declined 4.4 points to -75.6.

DATA:

No key data in the European morning.

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