What To Expect From ECB Meeting? - Views From 20 Major Banks

The following are the expectations for today's ECB April policy meeting as provided by the economists at 20 major banks along with some thoughts on the EUR into the event as provided by the FX strategists at these banks.

Morgan Stanley: The past two ECB meetings have caused rapid declines of EURUSD on the day..Our economists expect a discussion of the first few weeks of the ECB’s purchase programme, with the bank confirming its intention of EUR60bn of QE a month. Any mention of the EUR during the press conference will be closely watched.

Deutsche Bank: ECB President Draghi seems likely to express guarded optimism in accordance with an improving economic dataflow, whilst remaining wary of downside risks to growth and thus committed to the balance sheet expansion that is now underway.

LIoyds: With no change in policy expected at today’s ECB meeting, the focus will be on President Draghi’s press conference. Having completed its first month, he is likely to indicate that the QE programme has got off to a good start, which alongside a general firming in activity evident in both hard data and surveys should provide a generally optimistic undertone. However, he is likely to temper his optimism by pointing to the need for the QE programme to run its course in order to deliver a more durable improvement in the inflation outlook, curtailing any suggestions of a premature end to asset purchases.

Westpac: ECB meeting today brought forward by a day due to the G20 Finance Ministers and Central Bank Govs meetings in Washington starting tomorrow. Draghi will be watched as to whether the ECB bond buying programme will be tapered or extended, whether the ECB is buying longer duration in the periphery to get yields down vs the core and whether ECB economic projections are just too optimistic.

Credit Suisse: The ECB meeting is likely to be a non-event with purchases well established and no forecasts due until June. We remain bearish on EUR and expect volatility to remain subdued until the next US payrolls release.

Standard Chartered: CB Monetary Policy Decision will be announced followed by the ECB Chief Draghi Press Conference. No changes are expected, but we will probably get an update on how QE is going and what growth and inflation prospects look like. Draghi always manages to get the EUR moving.

SocGen: The ECB is set to maintain the status quo on all its policy decisions (interest rates, QE, LTRO etc.). The Communiqué will reiterate that the €60bn/month QE programme will run “until end-September or until inflation converges to 2.0% medium term”. The ECB will be pleased to highlight that it met the €60bn QE purchase target in March, defying some observers’ predictions. In order to downplay talks of an early QE tapering, we believe that President Draghi will keep a dovish tone, indicating that the overwhelming majority of the Governing Council wants to implement QE in full.

Nomura: We do not expect any changes to the monetary policy stance from Wednesday’s Governing Council meeting, nor any substantial changes to the parameters of the Public Sector Purchase Programme (PSPP) beyond an expanded list of eligible Agencies. The statement and press conference will have to balance the positive message of cyclical improvement in the economic data with keeping very premature taper expectations contained. While we expect Mr Draghi to express ongoing satisfaction with the progress of the PSPP both in terms of implementation and market impact, the ECB President will likely reinforce that an improvement in the inflation outlook will take time, the Governing Council continues to envisage full implementation of the PSPP and purchases could extend beyond September 2016, if needed.

Rabobank: We expect ECB President Draghi to stay close to the story line set out in recent speeches, and the thinking as reflected in the monetary policy account of the meeting held on 4-5 March. This means that whilst the GC’s decisions have made a “strong contribution in confronting the risks of too prolonged a period of low inflation…”, they are unlikely to see a need “… to reconsider any of the parameters underlying the expanded APP.” The focus, then, is likely to be “on the decisive implementation of the measures decided previously”, to quote ECB Chief Economist Peter Praet.

UBS: The minutes of the early March meeting revealed that the ECB is determined to stay the course with its QE program, as its economic projections depend on full implementation. The ECB will likely reiterate the strong line taken previously and though keep current policy unchanged.

BNPP: market sensitivity to ECB meetings will remain low in H1 as there is no scope for new policy announcements and we expect Wednesday ECB meeting to be no exception. The ECB should be happy with the impact of QE so far, implying a more upbeat assessment of the economic outlook at the press-conference and consistent with the March improvement in staff macroeconomic forecasts. That said, we suspect President Draghi is well aware of the importance of expectations for QE and, echoing the minutes from the March meeting, will be keen to stress that the ECB intends to fully deliver on the previously announced policy measures as growth risks remain to the downside.

BTMU: The ECB meets today in Frankfurt and with QE only just about underway there will be little in the way of policy announcements. However, there are likely to be plenty of questions that will focus primarily on the growing environment of negative yields in government debt markets and of course on Greece. We suspect President Draghi’s tone will be somewhat more upbeat – certainly the data since the last meeting in early March has improved, although the lift to inflation expectations has been modest. We mentioned here yesterday the ECB Lending Survey, which was released yesterday and did confirm both an increased willingness to lend to non-financial corporations and increased demand for loans as well. President Draghi will no doubt point to both the AQR/Stress tests and QE as policies that are now beginning to play a role in improving credit conditions...Finally, Draghi may also be asked about the euro decline. Given the more vocal criticism from the US Treasury (semi-annual report) about over-dependence on monetary policy, the speed of euro decline versus the dollar could be raised given the current EUR/USD low was recorded since the last meeting.

Credit Agricole: All eyes will be on President Draghi today as he presents ECB’s latest economic assessment. Investors will want to know whether: 1/ Improving Eurozone data will lead to QE taper before long and 2/ Record low Eurozone bond yield will trigger deposit rate cut soon. Our view is that the ECB will signal little appetite for policy changes anytime soon. As a result, the April meeting could prove far less exciting than its predecessors in January and March. In turn, with market still very short, the lack of news should be seen as good news for EUR. We further suspect that the President could highlight that the ECB would address potential bond market liquidity constraints by tweaking issue limits or expanding the range of available assets. That could come as a relief for many who sold EUR aggressively when on March 5 Draghi suggested that the ECB could cut deposit rate further to facilitate QE purchases. So, is EUR a buy ahead of the ECB? Market positioning, recent Eurozone data and a non-event April policy meeting could point in that direction. On the day, it should also help EURUSD evidence of renewed US IP weakness in March. All that said, risks about Greece should linger with Athens still to submit an updated reform proposal to unlock fresh bailout funds. Recent headlines seemed to further dash hopes for a deal on April 24. EUR remains sell on rallies for now.

TD: Starting with the ECB rate decision, TD's base case is that rates will be left unchanged with no significant EUR/USD reaction. --Moving to the open statement, TD's base case (80% chance) is that there will be little to change here and EUR/USD will likely be capped by 1.0715 (minor short-term fibo and double top neckline trigger). --If the ECB upgrades growth risks to "almost balanced" (5% chance), TD sees EUR/USD likely breaking above 1.0715 and moves to around 1.08. --On the other hand, if the ECB language downplays most improvements as far too early to suggest anything (15% chance), TD sees EUR/USD drifting lower but likely unable to break the 13 April low of 1.0521.

JP Morgan: No policy changes are expected at this week's ECB policy meeting and Draghi will continue to be satisfied with the greaterthan­expected traction QE is getting in financial markets and express a “prudent optimism” about the macro outlook. He will be encouraged by the pickup in bank lending growth as a sign that QE will be transmitted from markets to the real economy, and argue that signaling effects may already be working. But, he will stress the “prudent” aspect to this optimism by dismissing suggestions that the ECB may need to taper its purchases before September 2016. In particular, he will emphasize that the staff forecast assumes full QE implementation and that risks to the staff projections are still on the downside (even though better­than­anticipated QE traction has reduced these risks). This is probably best illustrated by the uncertainty the Governing Council saw around the 2017 inflation forecast in the Accounts of the March meeting. Draghi will also give a reminder that the ECB’s current bias is to make purchases beyond September 2016, rather than to taper before then. In our view, the hurdle for the ECB to taper its purchases before September 2016 is very high.

BofA Merrill: The next ECB meeting should be one of the easiest for the Governing Council in many months. QE has been announced and pre-committed until September 2016; the growth outlook is getting brighter, including an improvement in the credit cycle; inflation surprised the ECB on the upside in the current quarter for the first time in many months; the very strong performance of the QE program in its first month has, for now, dealt with the doubts on the ECB’s ability to deliver on the size of its purchases. The ECB press conference will likely need to address two recurring questions: 1) whether the brighter outlook could lead to earlier tapering and 2) whether the deposit rate could be cut further. As we have said, we think the answer to both questions is no, and that European Central Bank (ECB) President Mario Draghi will reassure us once again. In addition, the ECB is expected to announce changes to the list of SSAs eligible for the purchase program. In other words, the bar will be set very high to decide when to reduce or stop purchases. In our view, this means that, even if, mechanically, the ECB forecasts for inflation move slightly above 2% by the end of 2017, this is unlikely to trigger any intense discussion on the speed of purchases.

Barclays: We expect the ECB to leave policy unchanged and focus on the impact of its QE program after one month of implementation. The ECB’s policy meeting and subsequent press conference will be the focus in the coming week. President Draghi will likely indicate that ECB QE has got off to a good start, re-iterating the Governing Council’s commitment to its inflation mandate. Moreover, the recent stabilization in energy prices has helped stabilize inflation. Yet, inflation expectations have been range-bound since the start of the QE program, suggesting a stronger commitment to low interest rates for the foreseeable future until inflation returns to mandate-consistent levels On the basis of poor returns to capital in the euro area and lower-for-longer rates, we continue to expect modest EURUSD depreciation.

ING: Wednesday’s Governing Council will likely see the ECB ‘sit back and relax’...Expect firm message to be delivered of full implementation of QE through to Sep-16. EUR implications: Given what should be a quiet ECB press conference, we doubt the EUR will see too much volatility. ...Based on our expectation that ECB bond buying and TLTRO take-up should propel excess liquidity to the €600bn area later this year, EONIA looks set to sink near -0.20% and stay there through 2016. A very heavy EONIA should keep EUR TWI on its lows and provides plenty of room for EUR/USD to break lower when USD rates are expected to break higher this summer. We retain a 1.00 EUR/USD target for end June this year.

SEB: We do not expect any major news or policy changes from the upcoming ECB meeting. ECB President Draghi should emphasize that the ECB remains determined to implement all policy measures announced so far and that monetary policy will remain highly accommodative as long as it proves necessary. Furhtermore, he may stress again that rates have reached their lower bounds.

Danske: We do not foresee new signals at today’s ECB meeting and we expect ECB president Mario Draghi to continue to adopt a dovish stance. This will not have much market impact in our view, as yields are already very low across the curve. We look for Draghi to reiterate that risks to the economic outlook remain on the downside and that the ECB intends to carry out QE purchases until the end of September 2016. Draghi will likely get questions on the issue of whether there are enough bonds to buy and whether the ECB is creating distortions in bond markets.

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