The ECB rate decision (12:45 GMT) and Draghi press conference (1:30 GMT) are the main event today with the central bank widely expected to confirm the end of their asset purchase programme (APP - a form of QE). What the market will likely look for is any signals as to when the first rate hike will occur as well the overall tone from the governing council errs on the hawkish or dovish side. Here’s the views of some major banks ahead of the event:
ING
“The ECB meeting will not only be the last meeting of the year but will also be a historic meeting. It should mark an important step in returning monetary policy to normality. Only, hardly anyone seems to be interested. Thanks to changes in the communication back in June, market participants and ECB watchers have been well prepared for the gradual end of the ECB’s net asset purchases. Anything else than the announcement to bring these purchases down to zero by year-end at Thursday’s meeting would be a great surprise.”
Rabobank
“The ECB will maintain the risk assessment of “broadly balanced”, and recent solid wage data will probably be Mr. Draghi’s key argument when selling the ECB’s economic outlook.”
“Forward rates guidance is likely to remain unchanged at “through the summer of 2019”, the end of net asset purchases is likely to be confirmed, reinvestment modalities will highlight flexibility, and there will be no explicit maturity extension (i.e. no Twist).”
“A new capital key will likely only be applied to asset reinvestments, there will be no active rebalancing of the ECB’s portfolio, and only minor changes to the forward guidance, with no provisional to-be end-date specified. In terms of LTROs, they expect no announcement in December, but potential hints to pave the way for these in 2019Q1.”
Danske Bank
“The new reinvestment strategy could be the most interesting part of ECB meeting, when a formal announcement about the end of the net asset purchases is set to be made.”
“Although the stakes are high at the meeting, we expect Draghi to try to be as ‘dull’ as possible in order not to move the markets.”
“Growth assessment as well as new forecasts (including 2021) will be closely monitored. We will pay close attention to the wage growth assessment.”
“Given the current dovish market pricing we have a hard time seeing how the ECB can deliver a message that would lead to a dovish market reaction.”
“The press conference begins at 14:30 CET where we expect Draghi will try to be as ‘dull’ as possible.”
TDS
“The ECB is almost universally expected to end QE in December, which we agree with. We further expect the ECB to clarify that reinvestments will continue until “after the ECB begins to raise rates.” We also expect a smoother reinvestment profile to ease market liquidity, and more importantly for market sentiment, provide a mild skew of reinvesting marginally more maturing private sector debt into corporates, providing a mild credit easing.”
“We expect the ECB will leave the door open for rollover TLTROs, but it is unlikely to announce these until next year. The ECB also releases new projections. We expect relatively minor revisions, despite weaker 2018 growth and lower oil prices, and we do not expect them to suggest a downward bias to the risks.”
Nordea Markets
“Any change to the monetary stance is highly unlikely. Focus will be on the revised projections, reinvestments and any news on the possibility of new TLTROs. The ECB projections on growth and inflation will certainly be revised downwards, but the ECB is likely to interpret recent growth weakness as partly temporary.”
“While the consensus seems to be looking for a December or January announcement of a new TLTRO, by delaying an TLTRO announcement, ECB could increase the pressure on the Italian banking sector and cause downside risks to Italian growth – which might be judged worthwhile for political reasons. The first full 10bp rate hike is not priced in until February 2020; a fairly large shift vs a few months ago. We would bet on a modest steepening of the 2019-2020 curve next week.”
AmpGFX
“The ECB policy meeting poses an additional downside risk for the EUR. Even though the ECB is expected to stick to its current policy stance, there is a risk that ECB President Draghi does sound more dovish and acknowledge downside risks to their medium-term inflation goal.”
“Recent labour cost data for Q3 in the Eurozone suggest that a tightening labour market is generating stronger wage growth and might keep the ECB on track to end asset purchases in December and keep forecasting progress towards their inflation goals.”
“Given the skittish nature of the FX market, even a modest shift in language could weaken the EUR, especially if coupled with what is likely to be some downward revision to the growth forecasts by the ECB staff.”
Westpac
“As we head into the December ECB meeting, all eyes will be on whether they confirm the end of net asset purchases and repeat their forward guidance that key policy rates will remain on hold “at least through the summer of 2019, and in any case for as long as necessary”.”
“As such we expect minor downward revisions to their near-term outlook.”
“Also of significance will be their characterisation of risks to their outlook. To date, the ECB have continued to note that risks are “broadly balanced”. The mentioned downside risks are global in nature and are described as prominent.”
ABN AMRO
“There will be a significant dovish shift in the ECB’s tone and forward guidance over the coming months, but this will probably only happen in steps, with the coming meeting representing the first modest step. At the upcoming meeting we expect the following:
Moderate reductions in economic growth and inflation forecasts.
In line with the view that the ECB will largely stick to its base case for the economic outlook, it will unlikely alter its forward guidance on policy rates next week. We expect a change in the forward guidance to come by June of next year, when the Governing Council will signal that it expects policy rates to remain unchanged at least through 2019.
We think that the ECB will almost certainly announce that it will end net asset purchases this month. Given that purchases for a number of countries are constrained by issue(r) limits it cannot continue in any case. However, it may provide more information about its reinvestment policies.
We do not think the ECB is ready to announce any changes to the TLTRO programmes. Discussions appear to still be at an early stage. We expect changes to the TLTRO programme in March, to allow banks to repay the funds over a longer period than currently.”
