ECB Review For the feinschmeckers

ECB didn’t deliver new policy signals during today’s meeting, which on the face of it was rather uneventful. As usual, the devil is in the detail and today’s meeting highlighted risks ‘gaining more prominence’ and the confidence in its inflation outlook prevailed.
Rates markets were trading broadly sideways through the press conference, while the EUR/USD traded higher also, weighted by the weak US CPI number.

Just like the July meeting, today’s meeting was cut short of the usual 15:30CET limit. The most interesting today was the update of the staff projections (see below) and the inflation assessment: not to forget the increased prominence of the wage dynamics in the introductory statement (IS) and the press conference (‘wage’ was mentioned three times in the IS). The reinvestment strategy was not discussed today, not even when to discuss it, although he later clarified it would be in October or December this year. In June Draghi said that they would revisit this in the coming meetings. We favour a decision at the December meeting. It was mentioned that the capital key is the guiding principle.

ECB staff projections

ECB’s new economic forecasts saw downward revisions to the growth outlook but broadly unchanged confidence in building up inflation pressures:

Rising global headwinds to growth outlook: Reflecting weaker external demand, the ECB lowered the growth forecasts for 2018 to 2.0% - in line with our view - from 2.1% and for 2019 to 1.8% from 1.9%, while leaving the projections for 2020 unchanged at 1.7%. Risks to the growth outlook were still judged to be broadly balanced but uncertainties related to rising protectionism, vulnerabilities in emerging markets and financial market volatility have gained more prominence.

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