Thursday, 10 June, 2021
ECB – Street Views
In Brief:
· Analysts unanimously expect rates to be left unchanged
· Majority believe no change in either QE volume or purchase pace
·
- A few analysts believe a slowdown in the purchase rate could be announced
· New macroeconomic projections to be released:
·
- Upward revisions seen, especially in the nearer term
- Medium-term inflation projection not seen changing significantly, if at all
· Main focus beyond near-term PEPP purchase pace will be Lagarde’s comments during the press conference. Areas of particular interest:
·
- Potential hints about tapering, though unlikely
- Willingness to take a more bullish view of the economy
- Maybe some new insights into the ongoing strategic review
· Market pricing less than 1bp of deposit rate cuts for the next year
Street Views:
BoAML: expect the ECB not to taper, but to indicate that other instruments can pick up the slack once the PEPP comes to an end.
Barclays: expect the GC to continue to see mounting price pressures as passing, to maintain a dovish bias and to steer clear of creating any impression of tapering.
Citi: expect ECB to maintain the current pace of asset purchases unch until post-summer, with little guidance as to what happens then. The new staff projections should see upward revisions to GDP and HICP mid-points, but with the economy still seen operating with a lot of spare capacity and inflation remaining distant from the objective, so that favourable financial conditions will continue to be emphasised.
Commerzbank: Expect PEPP purchases “to continue to be conducted at a significantly higher pace than during the first months of the year”, but at a slightly lower pace than in 2Q. Given seasonal effects likely to result in lower purchases in summer anyway, Lagarde will sell this as no tapering. Staff inflation projections beyond the current year will likely be unrevised.
Danske: expect a compromise on PEPP resulting in a purchase pace of around €70 billion per month in Q3 (to decrease some 15-20% in August for the usual seasonal reasons) with the PEPP’s flexibility enhanced. Expect that Lagarde will concede the outlook is for higher growth, but with inflation remaining weak.
Goldman Sachs: Expect a cautious near-term assessment of the pandemic but a clear upward revision of the growth outlook and more visible economic optimism. Expect the 2023 inflation projection to go up a notch to 1.5%. Expect the PEPP purchase pace to decelerate only marginally in 3Q, to €75 billion, with the ECB reaffirming its promise to conduct PEPP asset buying at a “significantly higher” pace than in January and February so as to avert tapering speculation.
ING: expect policy to be left unch and the ECB to do its utmost to avoid any explicit taper talk. Expect the ECB to drop the wording of a “significantly higher pace” in favour of “the Governing Council expects purchases under the PEPP to ensure current favourable financing conditions”, for example. Any further communication changes would come as a surprise and indicate amenability or opposition, as the case may be, to a postsummer discussion of tapering. Expect the growth projections to remain broadly unch for 2021 and 2022. The inflation projections, however, could be revised upwards.
Investec: expect interest rates and the PEPP envelope to be left unch but PEPP asset purchases to be dialled back to the pace of January/February. A better growth outlook is possible, especially for next year, and a higher near-term inflation outlook is more or less assured. The ECB is likely to admit that the outlook is better, also in terms of risks. Financing conditions are probably tighter now for what the ECB should see as good reasons, i.e. because of improved economic conditions, and should thus not be a source of worry.
MS: expect the ECB to maintain the current pace of PEPP purchases in light of tighter financial conditions, economic risks, below-target inflation and dovish ECB guidance. Expect projections to be somewhat better due mainly to the impact of the US fiscal stimulus package. The ECB will continue to see inflation above target in the second half of the year on temporary factors and then back below target in 2022-23.
NatWest Markets: expect comments made by Lagarde in May (“it is too early to ask medium- to long-term questions”) to set the tone for the meeting. Forecasts for growth and inflation will be revised up, but talk of tapering will be deferred despite the fact that the present rate of purchase would imply envelope exhaustion next March. Therefore, PEPP purchases will be slowed later this year, with the APP to compensate by making purchases from next March to the tune of €60 billion to €80 billion per month.
Nordea: expect the ECB to maintain the current pace of bond purchases, as recovery is not yet self-sustaining, while the PEPP envelope remains sufficiently full. PEPP purchases are likely to decline noticeably in the summer anyway, and the ECB will agree to reduce purchases in September and to terminate net asset buys by the end of March 2022. Expect only small changes to the ECB staff projections.
Rabobank: expect the deposit rate unch at -0.50%, APP to continue at €20 billion per month and the PEPP envelope unch at €1,850 billion. Expect the ECB to decide on a “technical adjustment” to the PEPP pace, with a “slightly lower” pace through Q3, but with a risk that such a move could be deferred for now. Near-term GDP and inflation forecasts will probably have to be revised up, but 2023 HICP will likely stay at 1.4%. At a minimum, Lagarde should sound more optimistic about near-term risks.
Société Générale: Expect the ECB to again declare it too early for tapering talk. Even amidst fewer risks and an upgraded growth outlook, the ECB will probably see medium-term inflation significantly below the objective. Expect a genuine discussion about tapering to occur after the summer, with the ECB to announce by December the end of PEPP on schedule next March, its burden to be assumed by the APP to the tune of €50 billion per month.
Swedbank: expect current monetary stance to be left unch. The ECB is likely to continue its accelerated asset purchases under the PEPP through the summer and then taper in autumn. It should reiterate its readiness to maintain its ultra-accommodative monetary policy stance. PEPP asset purchases will end before mid-2022, while other asset purchase programmes will continue buying at least until the end of 2022 and probably even beyond that.
Source: InTouch Capital Markets
James Fay
Founding Partner
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49 Carnaby Street,
London, W1F 9PY
United Kingdom
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