Friday, 23 April, 2021
Street views post ECB
Street views post ECB
Citi: If there are times when skipping a meeting (and a press conference) would make sense, then this was it. There was nothing new for the ECB to communicate, and the introductory statement is essentially a carbon copy of the one presented in March. Hopefully, 10 June will be different, with new forecasts and a likely decision about the pace of PEPP during 3Q-21. We continue to wait for an explanation of how the ECB intends to close the inflation (and GDP) gap created by the pandemic and worry that not much will be forthcoming until the conclusion of the strategy review this autumn
SocGen: The ECB remained dovish at its latest monetary policy meeting, hoping that the economy will be in a better position in June. If that was the case, we could get some discussion about PEPP tapering but for now this is premature; purchases could actually continue to increase in May/June. At the current juncture, President Lagarde sees the Fed well ahead of the ECB in terms of the economic recovery and inflation that could justify a tapering of asset purchases.
A dovish ECB and the start of NGEU should support peripherals. Italian ratings will be reviewed by S&P, DBRS and Moody’s soon.
NWM: The meeting was largely uneventful, as widely expected. The introductory statement was a repeat of the March one, and there was no change to the economic backdrop, policy decisions, and assessment of risks.
• We did get some (kind of) clarification on what “significantly” higher PEPP purchases means… Lagarde, in the Q&A specifically mentioned July as a reference pace for what to expect in the coming weeks and months (in Q2 overall). That reference to July would suggest a higher pace of weekly purchases relative to the one seen since the March meeting: to ~20bn/week.
• … and we were also told that no decision has been taken (yet) to slow PEPP purchases again. Lagarde said that such a decision was “premature” and that it hadn’t been even discussed in today’s meeting. So, while we still expect some slowdown in purchases from Q3, in light with our forecasts (and with, we believe, the central scenario of the ECB), the more hawkish signalling of some of the ECB Council members were not taken on board by Lagarde today, removing any hawkish bias to today’s meeting.
• We feel the risks to the GDP scenario are slowly, implicitly, moving to the upside, though. On the macro front, Lagarde was very explicit in stressing short-term downside risks. On the medium-term, while the emphasis was on “balanced” risks – again as in the March meeting –, our sense is that implicitly the message was starting to move more clearly towards the upside… True, there are remaining risks related to Covid infections, the logistics of the roll out of vaccines, and possible scary variants… But it is also the case that the global economy is rebounding swiftly and that the impact of restrictions on GDP growth appears to be on a waning path
GS: While yesterday’s Governing Council meeting brought limited news, we see three take-aways from the press conference. First, President Lagarde sounded broadly balanced on the economic outlook, acknowledging recent progress on the vaccine roll-out and services activity, but also stressing that the near-term outlook remains clouded by uncertainty around the pandemic. Second, President Lagarde appeared satisfied with the effects of the increase in the PEPP pace, guiding towards an average pace of around EUR 85bn per month during Q2. Third, President Lagarde called discussions to phase out PEPP “premature,” noting that the economy has a long way to go until it has “crossed the pandemic bridge.”
– Looking ahead, we still expect a notable upgrade of the growth projections at the June meeting and a signal that the Governing Council intends to slow the PEPP purchase pace in Q3. But we look for only a small reduction in the purchase flow to EUR 75bn in Q3, in between the pace seen in Q1 and Q2. We expect the strategy review to conclude in September with a symmetric 2% aim and enhanced forward guidance to signal that the Governing Council intends to keep policy highly expansionary well into the recovery.
ING: This was an ECB meeting which had “see you in June” written all over it. In fact, there was very little news from the central bank, except for a reshuffling of the introductory statement, putting forward guidance on rates at the top and trying to hush any discussion on possible tapering. It’s a safe bet: the June meeting will be much more exciting
Danske: The ECB meeting concluded today was not a ‘significant’ meeting, with no new signals leaving many decisions for the June meeting. Near term growth outlook was ‘titled to the downside’ while the medium term growth risk was ‘broadly balanced’. The latter has paved the way for a lower PEPP volume to be agreed at the June meeting.
– Regarding the PEPP implementation, there are still a number of outstanding questions. While Lagarde emphasised we should not focus on the weekly figure, but rather on the monthly figures, it remains unclear if the increase we have seen (when corrected for trading days) is the full amount of ‘significantly’. We expect so and do not expect higher volume.
Nordea: We think the ECB will decide in favour of continuing the current pace of asset purchases also in Q3, but expect the net purchases under PEPP to end in March 2022, as we judge it will be increasingly difficult to argue at that point that the coronavirus crisis phase would still be ongoing. As the inflation outlook is still likely to fall short of converging to the ECB’s target at that stage, we see the ECB moving some of the PEPP purchase volume to the APP, and see net asset purchases continuing throughout 2022, but with a significantly lower pace compared to the current tempo.
Investec: Overall y’day’s Governing Council meeting was a fairly straightforward affair, presenting little that would change our view of the policy outlook, which sees no change in rates until 2023. However the next meeting on 10 June should provide a little more interest given new economic projections are due and given that implicitly June will be the last month of the stepped up PEPP purchase pace
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