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What To Expect From ECB? – Views From 17 Major Banks


The following are the expectations for today’s ECB March meeting as provided by the economists at 17 major banks along with some strategies to play the EUR into the event as provided by the FX strategists at these banks.

Goldman: We expect rates on hold (ECB Main Refinancing Rate at 0.05%, in line with consensus), and we expect the Governing Council of the ECB to provide more details about its sovereign asset purchase program.

Morgan Stanley: The ECB is set to provide the details of the QE programme today as well as the new staff forecasts, which are likely to be extended out to 2017. Our economists expect an upward revision to the growth forecasts, but also suggest that there might be another downward revision to the inflation forecasts. EUR has already extended the major downtrend, not just against USD but on many of the crosses. The move below the 1.1100 January low now opens the way for a decline towards the 1.07 area, we believe.

JP Morgan: The ECB is expected to give more details of the QE announced on January 22. We expect the ECB to start sovereign purchases the week of March 9 and the €60bn monthly purchases to be split as following: €10bn of covered bonds & ABS, €6bn of European institutions, €2bn of agencies and €42bn of sovereign bonds, of which €3.4bn of inflation linked bonds.

SocGen: Today’s ECB meeting in Cyprus should be accompanied by a few more details about the bond-buying programme, but few fireworks. Re-affirmation of the commitment to buy EUR 60bn per month, some clarity on the logistics (how the issue and issuer limits will be operated, etc) will be important to the bond market, which has gone a long way since the original announcement. Any sign of discord (from the Bundesbank?) would be noteworthy too. But while the risk of a further correction in Bunds is obvious, the FX market seems pretty single-minded where it comes to the Euro. The only way is (or has been, until now) down. Our technical analysts see the next support at 1.08 in EUR/USD and the lack of any kind of meaningful bounce at any stage this year probably means there are now people selling into weakness.

Barclays: We do not expect the ECB to make any monetary policy changes at this meeting given the recently announced expansion of its asset purchase program. However, we think that the ECB will likely release the execution details of the new program with buying likely to start in early March, possibly next week. We are looking for the move below the 1.1100 area to confirm downside traction towards targets near 1.1050. Beyond there we expect a move lower towards a confluence of support in the 1.0765 area,

SEB: At its meeting on Thursday, the ECB Governing Council will mainly focus on the details of its expanded asset purchase program. Otherwise, it will reiterate its forward guidance that policy rates will remain at current depressed levels for an extended period.

BNPP: Much of Thursday’s ECB policy announcement is likely to be about clarifying the details of the QE programme announced in January. One aspect that has drawn market concern in particular is whether the ECB will be able to source EUR 60bn of assets per month. We expect Draghi to reassure the markets on that front as any wavering on the total amount would be very damaging for the credibility of QE. Outside of the technicalities of asset purchases, markets will also focus on the updated staff macroeconomic projections which will for the first time extend to 2017. We are looking for the mid-points of the CPI forecast to remain below 2% over the whole forecast period and suspect Draghi will be careful not to overplay the recent improvement in economic data in his comments. While EURUSD did slip to a new 11-year low on Wednesday, we see the currency entering a period of more gradual ‘flow-driven’ downtrend as opposed to the previous faster ‘announcement-driven’ move.

BTMU: Today, President Draghi will hold his monetary policy press conference and perhaps provide some details for the financial markets – the obvious one being when will the QE buying actually start? Also reporters may try and gauge how strict the ECB is on its self-imposed limits of buying specific issues and from each sovereign. We sense one theme today may centre around questions over the ECB’s ability to meet its goal of buying something in the region of EUR 850bn worth of sovereign debt. Expect Draghi to be very forceful in stressing the determination of the ECB to meet its goal – that is likely to give an impression to the market that the ECB may buy “at any price” and drive yields further lower, of course dragging the euro down too…We will also get 2017 forecasts for the first time and we suspect that the 2017 inflation rate may be put at about 1.7%, close enough for the ECB to argue that it has met its goal of price stability.

Credit Suisse: We expect the ECB to remain on hold and all eyes to be on the QE operational details. We remain bearish on the EUR.

ING: Three factors will be of interest in today’s ECB meeting: details of the QE programme, ECB macro-economic assessment and Greece. Regarding the details of QE, our rates strategists point out the January ECB Minutes suggested that the purchases of government securities will in principle be conducted according to national central banks’ shares in the ECB’s capital key. Regarding the target maturities of bond purchases, the ECB Executive Board member Coeuré has suggested it would be based on market outstandings and will reflect the liquidity of specific segments. This would mean that the ECB (or the National Banks) would not shy away from buying, for example, shorter German maturities with negative yields. One reason for that is that the ECB does not want to distort the yield curve. This is particularly important for the EUR outlook, as currencies tend to be particularly sensitive to short-end rates. While we think that the initial QE effect is by and large priced into the EUR, the ongoing and persistent by-product of it (short-end rates grounded to zero for quarters to come) means that any EUR upside will be limited. Indeed, such ECB stance will facilitate EUR/USD decline once the Fed starts tightening its monetary stance and the US short-end rates spike higher.

Westpac: Mar will be the first month in which the ECB’s new asset purchase program takes full effect. €60bn in bonds are to be bought by the bank each month, from Mar 2015 until (at least) Sep 2016. That compares to the €13bn bought per month until now. Mar will also see the first TLTRO for 2015, although as was the case in late 2014, demand from the banks for liquidity for lending is unlikely to be significant in scale. With the above policies only just being initiated, there is no cause for further action by the ECB in Mar. Indeed, with GDP growth maintaining a circa 1% pace and given confidence has firmed somewhat after the Jan meeting, the Committee is likely to feel comfortable maintaining its current stance for many meetings hence. Key to the outlook for policy will be: the underlying inflation trend sans oil; activity growth; and how the liquidity offered by the ECB is used by market participants. All of this will only be known with considerable time.

UBS: The ECB is expected to address the technicalities of its QE programme and also the matter of Greek access to the ELA. Recent robust readings in inflation and output also raises questions over the scope of the programme, but the release of staff forecasts for 2017 may yield a different interpretation.

RBS: The ECB is set to announce finer details of its QE plan to purchase EUR60bn per month until Sep-2016, with the intention to continue it until there is a sustainable adjustment in the path of inflation towards the 2% target. It will release updated economic forecasts which will help set expectations on how long the QE program may last. However, it is unlikely that the market will be forward-looking enough to see the end of this QE program for some time. Continuing in the background are the debt financing negotiations with Greece. Draghi will be quizzed in the press conference on how and under what conditions the ECB will continue to provide term liquidity to Greece. Greece faces maturing loans to the IMF and refinancing Treasury bills in coming weeks

Credit Agricole: The ECB may account for stabilizing growth conditions. However, central bank President is unlikely taking a less aggressive monetary policy stance. Accordingly the EUR is likely to remain subject to downside risk, in particular against the USD. We remain short EUR/USD.

Deutsche Bank: More than a month has passed since Draghi announced QE and ahead of this Thursday’s meeting most are still asking whether policy is fully priced. Instead, we find a different question far more interesting: is ECB pricing here to stay? In other words, will the ECB be able to hike rates for the rest of this decade? We think the answer is no: Europe’s output gap is simply too big to generate sustained inflation any time soon. If one agrees with this assessment, the investment implications become much more far-reaching. The drop in European yields ceases to be a cyclical event, but instead a once-in-ageneration structural transformation of financial markets. In turn, this has global consequences. Here are our top three: 1. Only European equities will have a growth beta… 2. Euro has much more to weaken… 3. Bond conundrum is here to stay..

BofA Merrill: ECB meeting a non-event… attention on details of QE. With QE announced and pre-committed until Sep-16, suspense on ECB policy should be minimal (for a while at least). From the spring of 2016 onward, we are likely to once again start scrutinizing whether the programme will continue after September. However, in the meantime the debate is likely to focus on the technicalities of QE; if and how the central bank manages to deliver on its pledge to purchase EUR 60bn of securities every month. It’s from this point of view that next Thursday’s meeting will be important.

Danske: The ECB meeting this week is very likely to be less interesting than the meeting in January when the ECB announced its QE programme. Focus will be on further details about the purchases and the upcoming publication of the Legal Act. However, we do not expect a major market impact, as the details announced in January were much clearer than we are used to when the ECB launches new measures: See the table below detailing the announced details and our publication Draghi Delivers: ECB’s bazooka in detail and market implications, 21 January.