Wednesday, 09 December, 2020
• No change in interest rates expected at this meeting
• New unanimous expectations that ECB will extend/expand PEPP and TLTROs:
o Increase PEPP size by €500bn plus extension until at least the end of 2021
o TLTRO III ‘special’ discounted rate of -1.0% extended until at least the end of 2021
• Some banks expect additional measures to be announced, potentially including:
o Increase the Tiering multiplier from 6x to 8x, 10x or even 12x
o APP purchase rate increased to €40bn p/m from the present €20bn
o Re-open TLTRO III to new tenders & relaxing eligibility for its use
o Launch of a new TLTRO focused on SME funding
o Re-investment of PEPP extended until the end of 2023
o Fallen Angels rules could be extended and relaxed
• New staff forecasts exp with small downward revisions expected on headline and core inflation
• Market pricing implies just 15% chance of a 10bp cut this month but 85% chance by December 2021
BoA: expect an increase in PEPP by €500 bn and extended by another 6 months to the end of 2021. Reinvestments timeline should be extended by 1 yr to the end of 2023. On the present TLTRO, see special interest rate terms extended by at least 1 yr or longer. A new TLTRO targeting SME’s could also be on the cards. With the EUR having strengthened recently, feel the ECB may even announce a quasi open-ended PEPP. Although no rate cut is expected, could also see the tiering multiplier increased to 8x or 9x
Barclays: expect an increase in PEPP by €500bn plus extension until at least the end of 2021 while reinvestments are extended until the end of 2023. On TLTRO, the extension of the favorable interest rate level to the end of 2021 will be announced. Other changes expected include an increase of the tiering multiplier from 6x to 10x and also potentially an increase of the APP monthly purchases above €20bn. On the macro front, expect the ECB to revise GDP up this yr but down in 2021 while both headline and core inflation to be revised lower for 2021
Citi: expect an increase in PEPP by €500bn plus extend its end by 6 months to the end of 2021. TLTRO should also see the extension of the special interest rate period by 6 months to the end of 2021. believe these changes are already priced in to the market.
Commerzbank: expect an increase in the PEPP of €600bn with purchases continuing at least until the end of 2021. On the TLTROs, they see the special -1.0% rate extended beyond June 2021 until June 2022 and ECB redefining the observation period to enable banks to qualify for the special rate. The ECB may also increase the present 50% limit to 75% or include housing loans, so banks can increase their participation in the program. On tiering, they see the multiplier doubling from 6x to 12x
Danske: expect an increase in PEPP by €400bn plus extend its duration to the end of 2021. See a chance for them to announce an increase in the APP purchase rate. On the TLTRO, see the special interest rate extended for the whole duration of the liquidity operation (3y), plus provide an extra 4 additional TLTRO operation until Q1 2022 and expand the eligibility pool. On tiering, an increase from 6x to 10x is on the cards, while the April grandfathering of collateral eligibility rules are extended until end-2021. On ECB macro projections, see downward revisions to GDP and inflation in 2021 although the revisions are described as ‘cosmetic’.
GS: expect the ECB to announce measures that extends the duration of policy support rather than easing financial conditions from present levels. For the PEPP, they expect an increase of €400bn and an extension to its to the end of 2021. For the TLTRO, the preferential rate is expected to be extended to end 2021. ECB may also decide to relax borrowing allowances. Expect no change to either the tiering multiplier or interest rate levels. On the macro releases, expect staff projections to revise lower 2021 growth and inflation in. On the first release of 2023, expect it to show the growth rate above trend and a 1.6% headline inflation number
ING: believe the main aim for the ECB is to extend current very accommodative monetary stance until the vaccine can be rolled out. See an increased in PEPP by €500bn and an extension to the end of 2021, an increase of APP purchases from €20bn to €40bn per month, an extension of the special TLTRO rate by 6 or 12 months, an increase in the tiering multiplier and potentially including Fallen Angels into the corporate bond purchasing programme. On macro projections, don’t expect to change significantly 2021 and 2022 inflation outlooks although recent EUR strength could result in them shaving 0.1% off both GDP and inflation forecasts.
JPM: expect an extra €500bn for PEPP plus 3 additional TLTRO-III tenders at negative rates. Both the PEPP program and the special TLTRO discount rate to be extended until the end of 2021. New staff projections will likely revise GDP higher but still show core inflation far below the 2% target with 2023 only projected at 1.3%.
MS: expect an increase of the PEPP envelop by €600bn plus an extension of the purchases until at least 2022. On the TLTRO, they expect an extension of the sweetened borrowing rate by at least another full yr. No change is expected on the deposit rate.
Nordea: expect an extension of the PEPP both in terms of size (€500bn) and duration (end 2021) and a new TLTRO with easier terms to be announced. On the subject of staff projections, see inflation below target even in 2023.
NWM: expect an increase in PEPP by €500bn plus an extension until at least the end of 2021 or potentially even to mid-2022. On TLTRO, an extension of the special rate to end 2021 and potentially even to mid-2022. On the APP, they see an increase from the €20bn rate to €30bn purchase rate. They also highlight the potential for the tiering multiplier to be increased from 6x to 10x but feel a depo rate cut to be very unlikely. For macro projections, see 2020 and 2021 GDP growth downgraded while the first release of 2023 likely shows inflation still well below 2%.
Soc Gen: expect PEPP to be extended until end-2021 plus see an increase of €600bn. Will likely also extend the current TLTRO rates beyond June 2021. Do not expect a change in the tiering multiplier or a rate cut.
Source: In Touch Capital Markets
49 Carnaby Street,
London, W1F 9PY
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