Thursday, 29 October, 2020
ECB Preview & Street Views
In Brief:
• Analysts unanimously expect no new major policy measures to be announced in October
• Markets pricing minimal chance of a cut in Oct, slight chance in Dec but a full 10bp cut by end 2021
• ECB expected to maintain a dovish tone, reiterating it is prepared to act if needed
• Many analysts believe the ECB will prepare the ground for new easing in Dec (new staff forecasts) • Continued low inflation prints in September made further easing more likely in the near future.Similar to before the September meeting, expectations are for no new monetary easing at the October meeting. This includes no change in the three key interest rates and no change to the PSPP, PEPP or TLTRO programs. Nevertheless, with a COVID-19 second wave having already begun and lower than expected inflation numbers during in September, everyone expects the ECB will be preparing the ground for easing at the next meeting in December. Most think the tone of the October meeting will be very dovish. As normal, the ECB are very unlikely to explicitly pre-commit to a December move but, as noted by Credit Agricole, they could use the ‘ tasking the appropriate committees’ language which strongly suggest a move in December.
Street Views:
BAML: expect no policy action in Oct but an expansion of the PEPP program in both size and duration in Dec. An extension of the ‘special’ rebate of 50bp for the TLTRO beyond June 2021 could be on the cards.
ECB need to provide new staff forecasts to incl the June policy measures, the appreciation in EUR and the downside surprise in the Aug inflation print; could see a discussion of the ECB reaction function to downside surprises given the recent wobbles in EZ data; watch for questions in the press conf re: the strategy review given Fed’s Powell’s Jackson Hole speech.Barclays: Unlikely the ECB will announce new easing at the Oct Meeting. They will nevertheless convey a dovish message to prepare the market for new measures in Dec. Easing is likely to take the form of PEPP expansion and extension plus potential tweaks to the TLTRO III.
Citi: ECB expected to maintain the wait-and-see mode buying time for a recalibration of the policy toolkit potentially in Dec. With a COVID 19 second wave beginning, calls for unprecedented fiscal-monetary policy coordination.
Credit Agricole: believe more monetary easing is needed now but the ECB will leave policy unch at the Oct meeting and instead look for a move in Dec. ECB may pre-commit for a move in Dec by stating they will ‘task the relevant committees’
Danske: expect no policy action in Oct although the ECB is likely to send dovish signals to increase expectations for a Dec decision to increase/extend PEPP. They also highlight that the ECB’s main role is to avoid market fragmentation and this has been achieved. When new economic projections are released in Dec, the ECB will then have all the arguments needed to extend the PEPP program until Dec 2021.
GS: too early to deliver easing at the Oct meeting. Although not their base case, they watch closely to see if the ECB pre-commits for the Dec meeting. With the market already pricing core yields near post March lows and sovereign spreads at tight levels, they feel the ECB will have difficulty in surpassing expectations.
ING: expect the Oct meeting to pave the way for more stimulus in Dec. When new stimulus is announced, they believe increasing the PSPP envelope is more likely that increasing the PEPP. Although the risk of a double dip has increased, it is too early to call for a significant contraction in Q4.
JPM: believe there is only a small chance of policy changes in Oct but look for the ECB to potentially provide guidance about the Dec meeting. Believe in Dec the ECB will announce an increase in PEPP by €500bn with another €250bn to be announced mid 2021.
MS: expect no policy action at the Oct meeting but should lay the groundwork for a move in Dec. With both headline and core inflation surprising on the downside and the beginning of a second wave for COVID-19, the case for further action has been reinforced. Nevertheless, action will be delayed until the Dec meeting since the ECB will have more information at that time on the US elections, Brexit, extent of the 2 nd wave of COVID19 plus insights on 2021 government budgets. In Dec, easing is likely via a combination of a PEPP top-up and the TLTRO 50bp rebate extended to end 2021.
Natixis: expect no policy action in Oct although expect them to provide a clear signal that action is coming in Dec. Expectations are for the PEPP program will then be increased by €250bn.
NWM: Although inflation is too low and economic data is likely to weaken, it is too early for the ECB to act. Easing is likely in Dec or early next year. The market is priced for action sooner and may be disappointed if no action takes place at this meeting.
Soc Gen: expect no policy action in Oct; PEPP to be extended in Dec until end-2021 plus see an increase of another €500bn. In 2021, the ECB may look to raise the tiering multiple and launch a new TLTRO if the inflation outlook continues to be remain weak.
Source: ITC Markets
James Fay
Founding Partner
T
M
E
49 Carnaby Street,
London, W1F 9PY
United Kingdom
Archr LLP is Authorised and regulated by the Financial Conduct Authority (FCA reference 617163).
Archr LLP is not covered by the Financial Services Compensation Scheme (FSCS).
Archr is registered in England and Wales No. OC371018. Registered office 115B Drysdale Street, Hoxton, London, United Kingdom, N1 6ND
This message may contain confidential or privileged information. If you are not the intended recipient, please advise us immediately and delete this message. The unauthorised use, disclosure, distribution and/or copying of this email or any information it contains is prohibited.
This information is not, and should not be construed as, a recommendation, solicitation or offer to buy and sell any securities or related financial products. This information does not constitute investment advice, does not constitute a personal recommendation and has been prepared without regard to the individual financial circumstances, needs or objectives of persons who receive it.
You are receiving this email because you are a valued client of Archr.
——————————————————————————-
This message may contain confidential or privileged information. If you are not
the intended recipient, please advise us immediately and delete this message.
The unauthorised use, disclosure, distribution and/or copying of this e-mail or
any information it contains is prohibited.
This information is not, and should not be construed as, a recommendation,
solicitation or offer to buy or sell any securities or related financial
products. This information does not constitute investment advice, does not
constitute a personal recommendation and has been prepared without regard to
the individual financial circumstances, needs or objectives of persons who
receive it.