ECB: Growth downgrades and dovish shifts can move markets – ABN AMRO


Nick Kounis, head of financial markets research at ABN AMRO, suggests that they expect the ECB to downgrade its expectations for economic growth, change its guidance to signal policy rates will remain on hold this year and extend its TLTRO programme at its upcoming meet today.

Key Quotes

“We think such moves can still surprise compared to what is being factored in by the consensus of analysts as well as financial market pricing.”

“As for interest rates, the consensus of analysts expects the deposit rate to be 20bp higher by the end of this year. This is more aggressive than current market pricing. A full rate hike is not priced in until March/April 202. However, markets are still pricing in a significant chance of an end 2019 move. We therefore judge that the combination of downgrades to economic growth and the change in forward guidance can still put downward pressure on German 5y and 10y yields, and flatten curves.”

“Finally, action on the TLTROs is now the market consensus, with 89% of respondents expecting a policy change according to the most recent Bloomberg ECB Poll. Like us, most analysts expect the announcement at the March meeting. As for today’s meeting, we do not expect the forward guidance to change yet or any movement in the macro projections (as they are updated next in March).”

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