Trading The ECB - Views From 10 Major Banks
Sep ECB: No Signal Of Further Easing
Monetary policy decisions: In line with our view, the ECB Governing Council decided today to leave its monetary strategy unchanged. Some expectations of additional easing measures were disappointed. Updated ECB staff macroeconomic projections indicate an ongoing moderate recovery with inflation rate moving closer to the target range over time. They therefore offered no basis for extra stimulus for the time being. The interest rates on the main refinancing operation, on the marginal lending facility and on the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. An extension of the asset purchase program wasn’t discussed. The Governing Council confirmed that the monthly asset purchases of EUR 80billion are intended to run until the end of March 2017 or beyond, if necessary and in any case until a sustained adjustment in the path of inflation consistent with the ECB’s inflation aim is seen. Therefore the door remains open for asset purchases beyond March 2017. The ECB Governing Council stressed it stands ready to act, if necessary.
Outlook: Today, we got the impression that the ECB Governing Council is satisfied with the effectiveness of its current monetary policy stance. We didn’t see any strong signal that another easing of monetary policy is likely in the months to come. In the next two meetings until year end the Governing Council may announce some limited changes of the APP parameters to ensure a smooth implantation of the program which are unlikely to push the euro lower. Additional ECB liquidity will continue to put downward pressures on money market rates and bond yields in the months to come.
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JP Morgan: On Hold, QE Extension In December
We no longer expect a rate cut and think that a decision to extend QE beyond March 2017 will be taken only in December. In addition, we think the staff will assume only a modest 0.2%-pt hit to the level of GDP from the Brexit vote, taking a tenth off 2017 and a bit off 2018.
Morgan Stanley: On Hold, Bullish EUR On Crosses.
We remain bullish on EUR. The eurozone economy has held up well post-Brexit, supported by the recent release of eurozone August PMIs. Our economists are now expecting the ECB to ease only in December instead of September, with the risk that it may not ease at all, supporting our bullish EUR view on crosses. Even if the ECB extends its QE programme or cuts rates further, we think it will not be able to push down long-term bond yields substantially to weaken the currency, as eurozone bond yields are already low or negative
Credit Agricole: On Hold, Upside EUR Risk.
In conclusion we see limited scope of Draghi making a case of more policy action being considered anytime soon, especially as its adverse effects as related to the banking sector may just intensify. As a result of the above outlined conditions position squaring related upside risks cannot be excluded, especially as EUR short positioning has risen of late.
Barclays: ECB To Adopt Wait & See Stance; EUR/USD Neutral.
This week’s ECB policy meeting (Thursday) will likely be neutral for EURUSD, in our view. Without significant changes to EA activity since June, we expect the ECB to adopt a ‘wait and see’ response, keeping all policy settings unchanged Our own expectation for European growth is that the political and policy risks, which were already elevated for Europe, have become even more pronounced post-Brexit. We think these risk factors will eventually lead to investment weakening by the end of 2016 but do not think the ECB will factor in these political risks at this juncture. We also expect only marginal downward revisions to the ECB’s inflation projections with risks still skewed to the downside. Our expectation for further policy easing in H2 16 remains in place, however, with the ECB likely expanding its QE by six to nine months at its October or December meetings, accompanied by modifications to the programme's technical parameters. We think that this move is highly expected by the FX markets.
BTMU: ECB To Delay QE Extension To Oct Or Dec; EUR Positive.
We had for some time been calling for an extension to the deadline for QE to be announced at the September meeting but our sense now is that the ECB may well delay that announcement until the October meeting or possibly the December meeting. As usual, the reaction in the markets and for the euro will very much depend on the tone of comments from President Draghi. What is clear is that an extension to the QE timeline is widely expected by the financial markets and as long as President Draghi makes clear that this is likely to be forthcoming rather than being abandoned, then the upside for the euro should be limited.We certainly do not see the ECB meeting this week as being any catalyst for a notable move one way or the other and while a delay in announcing a QE extension might be EUR supportive, we expect President Draghi to be explicit enough in providing forward guidance that reassures market participants that further easing will be forthcoming. In addition, President Draghi will signal technical changes to address concerns over sovereign debt securities becoming too scarce for the ECB to meet its monetary policy commitment.
Danske: ECB Will Keep The Powder Dry: No QE Extension At September Meeting.
We have changed our view and now expect the ECB to remain on hold at the meeting in September. We believe that in the ECB’s view the incoming information since July does not warrant additional easing. We still firmly believe the ECB will eventually extend QE purchases beyond March 2017 due to the lack of a sustainable path in inflation. However, for now, we expect it to keep its powder dry. A QE extension could be accompanied by changes to the purchase restrictions but we do not expect this to be announced in September. Previously, we also expected a temporary step-up in QE purchases as we looked for a weakening in economic data.
RBS: QE Extension On Thursday; Another Depo Cut In December.
We do not expect any changes to interest rate settings or to the monthly pace or the scope of the asset purchase programme (APP) at this Thursday’s meeting. But we are now expecting the ECB to extend the APP from March 2017 to September 2017. We think the ECB would rather act on this timing issue now rather than delay what we believe to be an inevitable adjustment to the programme at a later date. We expect another cut in the depo rate and a further upscaling of the QE programme in December.
BofA Merrill: QE Extension; No Large EUR Impact But Risk Likely To The Upside.
We argue the ECB cannot keep its options open until December. With macro data still weak and high market expectations after a dovish July meeting, we believe a commitment to continuing QE after March 2017 is the least markets expect. While the ECB is aware of the adverse consequences of its unconventional policies, we think its communication is still consistent with a full commitment to deliver on its price target, even if the other branches of policy are not as helpful. We do not see a large EUR impact from the ECB QE extension. The distance from the ECB’s inflation target is so long that we do not believe there is any investor who does not already expect the ECB to continue QE after March 2017. The market impact will depend more on the length of the extension and the technical changes to the QE program to allow extending it. As we expect only a six-month QE extension, with the technical details left for later this year, and no changes in the depo rate, we do not see a sustained EUR move from this meeting. Once we know the technical details, the impact on the EUR will depend on how much more room, if any, the changes to the QE program will create beyond the QE extension. Moreover, the risks to the Euro from the meeting may be to the upside. If the ECB does not announce QE extension in this meeting, markets could take it as a signal of strong disagreements within the ECB on how to extend QE. We are surprised we have not heard any ECB officials referring to scenarios for policies ahead, in contrast to what happened ahead of previous policy changes. This could suggest the internal debate has not progressed much. FX positioning suggests the market does not expect any surprises from the ECB.
Citi: ECB To Announce 3 Easing Measures.
We look for three ECB policy announcements: 1- We think extension of asset purchases for at least six months would be a first step in the right direction, 2- alongside changes to QE modalities to circumvent any scarcity issues. 3- We also expect a 10bp cut in the refinancing rate to -0.1% to be the first step, ahead of a 10bp cut in the deposit rate to -0.5% in March 2017.
BNPP: 3 Possible Changes To ECB's Purchase Rules Of Government Bonds.
We expect the ECB to announce an extension of its QE program beyond its March 2017 expiration at this week’s meeting. In order to address concerns about scarcity of paper, we also expect changes to the rules governing the purchase of government bonds. Our rates team sees three possible changes 1) increasing the issue share limit; 2) removing deposit rate floor; 3) moving away from capital key based allocation of purchases. Our rates strategy team see risks that long-end core yields rise in the aftermath of the decision, even if the ECB does deliver.
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