ECB: We assign 60% chance of ECB hike in December 2019

• Most interesting to us at next week's meeting will be the growth risk assessment and more hints on liquidity operations. We expect growth risk to be on the downside and no formal announcement of liquidity operations.

• We expect Mario Draghi to strike a precautionary tone in order not to move markets. Given the current market pricing, we do not expect the precautionary tone to lead to a significant dovish market reaction to the meeting.

Downside growth risk assessment expected...

After the ECB decided to end net asset purchases in December 2018, new policy signals are not warranted at next week's meeting in our view. Instead, the hotly debated growth risk assessment is set to take centre stage. At the previous meeting, the ECB coined the growth risk assessment as broadly balanced but moving to the downside. Since then, we have seen a string of disappointing data, which is also visible in the surprise indicator close to the lows reached around the sovereign debt crisis.

One could argue that the downside risk assessment has been long overdue looking at both soft and hard indicators. The shaded areas in the chart below indicate when the ECB has historically assessed the growth risks to be on the downside. Previously, when we have observed a similar correction in PMIs/the growth outlook as in recent months, the ECB has also changed its growth risk assessment, which could therefore have been warranted earlier. However, we believe that the broadly balanced risk assessment at the December meeting was needed for the ECB to end net purchases.

Furthermore, we note several governing council members have argued for a continuation of the narrative, while others point to the softer data warranting a change to the overall risk assessment. The previous time the ECB changed its risk assessment was in June 2017 (from downside to balanced).

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