With respect to today’s ECB announcements, analysts at Nomura explained that Much will now depend on the evolution of the data.
Key Quotes:
“If the recent slowdown (encapsulated in this week’s softer PMIs) stops here then that should be enough to convince the ECB that what we are witnessing a slowing back to trend from particularly strong rates of growth last year, rather than the start of a period of meaningfully weaker growth.”
“In our own forecasts we suspect the picture will be resilient enough such that the ECB decides to announce in December the cessation of net asset purchases at the end of the year – as the ECB has flagged for some time.”
“The Bank’s guidance on rates will likely be left untouched at December’s meeting, but we would expect to hear more about the ECB’s reinvestment plans – whether that be about the parameters of the process (including capital keys – Mr Draghi noted that this wasn’t something that had been discussed today, but would be surprised if a different concept other than capital keys was used to decide the geographical reinvestment profile) or simply a trivial adjustment to the guidance, so that “extended period” refers to the present time rather than the end of net asset purchases. As for interest rates, a year is a long time in economics.”
“It may well be that core inflation picks up and real economy data stabilise around trend (which is our view), such that the ECB feels confident in adjusting its guidance towards the middle of next year and begins to raise rates from September onwards slowly.”
“We will learn more with the publication of October inflation and Q3 GDP growth numbers across the euro area next week. Still, softer economic news has led the markets to price in less of a chance of monetary policy tightening in a year’s time, with expectations for the depo rate in Q4 2019 and Q1 2020 between 3bp and 8bp lower than was the case two weeks ago.”
Share
