Very dovish ECB to keep hopes of more easing alive


Market Movers ahead

  • We expect no rate cut or QE in connection with next week's ECB meeting but all options are expected to be left open in a very dovish statement. More details about the ABS programme are also expected to be revealed. 

  • We expect the US labour market report to show strong gains in employment in August, possibly fuelling expectations of an earlier rate hike from the Fed.

  • We expect Bank of Japan in a softer statement to acknowledge increasing downside risk from the consumption tax hike but any new easing measures are unlikely until late October.

  • In China the official manufacturing PMI is expected to have declined in August, albeit less dramatic than the HSBC manufacturing PMI.

  • In Sweden Riksbanken is expected to remain on hold and to keep its repo-rate forecast broadly unchanged, despite a possible downward revision of its GDP forecast.


Global macro and market themes

  • Tug of war for risk appetite between expectations of QE from the ECB and geopolitical risks from the Ukrainian crisis.

  • Rising debate on a possible early rate hike from Fed in the wake of strong US data and relatively hawkish minutes from the last Fed meeting.

  • Continued declines in inflation and inflation expectations have increased expectations that ECB will eventually be forced to embark on aggressive QE.

  • In Japan weak July data suggest that the negative impact from the consumption tax hike in April has been larger than expected. Further Bank of Japan easing is back on the agenda.

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