In Brief:

• Analysts unanimously expect no major policy measures to be announced in September
• Markets pricing minimal chance of a cut in Sept but approx. 10bp of cuts over the next year
• ECB expected to maintain a dovish tone, reiterating it is prepared to act if needed
• Many analysts believe the ECB will take further steps eventually. Most see an expansion and extension of PEPP as the most likely measure – possibly in Dec 2020 or early 2021
• New staff forecasts will be published. Most don’t expect major changes. Focus on 2022 inflation as a clue for likelihood of new measure to come later (possible small downgrade?)
• Focus on recent EUR strength – ECB seen more likely to try to talk it down than take policy action
• Desks widely noting the weak Euro Area Aug core CPI print but technical factors partly responsible?
• Expect questions on the ECB strategic review following Powell’s Jackson Hole speech but few expect Lagarde to provide additional insights on likely outcome

Street Views:

 

BAML: expect no policy action in Sept; 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: expect no policy action in Sept; don’t think the ECB will be too concerned over recent weak inflation given technical & seasonal factors impacting the August print; level & trend of mkt-based inflation expectations aren’t concerning; don’t not expect any major downward revisions for staff projections for inflation or growth

 

Citi: expect no policy action in Sept; expect a dovish ECB given EUR strength and weak core inflation; expect next policy measures in Dec with a €500bn PEPP increase; easing could be increased if there is further EUR strength

 

Credit Agricole: expect no policy action in Sept; ECB sees economic developments in-line with its June projections so more accommodation not warranted plus it still has sufficient room in the PEPP; but economic developments & inflation will require stronger action incl an increase in QE – expect this by the end of the year

 

Danske: expect no policy action in Sept but see a readiness to act remaining. Expect press conf questions on Powell’s recent speech on Fed AIT and implications for ECB’s ongoing strategic review

 

GS: expect no policy action in Sept; ECB likely to signal that they will use the flexibility within PEPP to respond to changes in the outlook, but additional accommodation will be needed if downside surprises on inflation persist; expect little change in GDP forecasts & small downgrades in 2020/21 inflation; on Euro strength, expect ECB to talk it down but high bar for policy action

 

ING: expect no policy action in Sept; new projections will acknowledge the v-shaped rebound but stress the high level of uncertainty; any downward revision to the 2022 inflation will increase the likelihood of additional stimulus; recent EUR strengthening will be discussed and could lead to a downward revision of inflation forecasts by 0.2 pp; the strategy review will get focus but don’t expect any insights yet

 

JPM: expect no policy action in Sept; new staff forecasts likely to confirm a large & long undershoot vs the inflation target; don’t expect the response to this undershoot (extending the PEPP) until next quarter; possible ECB could tweak TLTRO-III terms but less likely after ECB’s Schnabel’s comments.

 

MS: expect no policy action in Sept but the ECB will stress it stands ready to do more if warranted; PEPP is still well-stocked to keep buying at the current pace for many months; PEPP will be extended and expanded, probably next year but risk this is brought fwd to Dec; expect questions on recent EUR appreciation but this has been on a better outlook & reduced tail risks, so don’t expect any ECB action in response.

 

Natixis: expect no policy action in Sept; data remain consistent with a continuation of the recovery, though at a slower pace; Aug core inflation print is noteworthy but erratic factors partially responsible; on EUR strength, see some “verbal intervention” from Lagarde to signal willingness to ease further if needed; on the strategic review, Lagarde may stress the ECB’s current strategy does not bind its ability to ease the policy stance further and that the ECB’s review will be completely “open minded”

 

NWM: expect no policy action in Sept or for the rest of 2020; mkt is wrong if it thinks Sept is a “live” meeting; EUR rally and low August inflation print are not enough for “immediate action”; new staff forecasts for inflation likely unch for 2020 and 2021 but small risk of a 0.1% move lower in 2022 to 1.2%; see next TLTRO-III take-up to be net €200bn; possible further increasing will not even be discussed

 

Soc Gen: expect no policy action in Sept; PEPP to be extended in Oct or Dec; see room for some upward revision in 2020 GDP forecast but inflation outlook has worsened suggesting ECB need to do more for longer