What To Expect From ECB? - Views From 15 Major Banks

The following are the expectations for today's ECB June policy meeting as provided by the economists at 15 major banks along with some thoughts on the EUR into the event as provided by the FX strategists at these banks.

Goldman Sachs: We expect rates on hold (Main Refinancing Rate at 0.05%, in line with consensus. We see recent EUR moves as a positioning squeeze, rather than something that casts doubt over our longer term view.

Citi: As a baseline: 1. A emphasis on no tapering. 2. An acknowledgement that the current program is working (yesterday’s CPI is the easiest example), but… 3. ...a strong message the program needs to be implemented in full - and flexibility maintained. 4. An overall cautious bias – implied by the speeches of Coeure, Praet and Noyer. 5. A reminder to markets that the ECB is a rules based institution – it is unlikely to act in a way that facilitates stress on member countries (Greece). 6. Pay attention to the forecasts. A shift to the 2016/17 inflation forecast implies the ECB policy would need to change...We do not have strong views that today’s ECB should drive EUR lower – but we do not expect the ECB to contribute to a move higher.

Barclays: We do not expect new information regarding monetary policy, especially after board member Benoît Coeuré already announced two weeks ago that the central bank would frontload its asset purchases ahead of the holiday period. Moreover, although Greece will likely be in the spotlight during the Q&A, we do not expect any breakthrough in the ECB’s position, especially since negotiations between the institutions and the Greek government are in a crucial phase. During the press conference, ECB President Mario Draghi will present the updated macroeconomic forecasts of the staff. We do not expect any significant revision from the projections presented in March. Annual inflation for 2015 is, however, likely to be revised up slightly (a couple of decimal points from 0%), as oil prices have been higher during the past three months than had been envisaged at the time of the March projections. Of course, the Governing Council will probably hold a discussion about the implementation of its Asset Purchase Programme, and in particular the PSPP, which is entering its fourth month. We think it is still premature to draw final conclusions on whether or not QE will be successful, but we believe it is on track for now. However, following many years of QE in other countries (in the US and the UK in particular), there are still many disagreements as to whether or not QE worked in these jurisdictions and, if it did, when it started to do so.

BofA Merrill: We expect the focus of this week’s ECB meeting to be the new forecasts and whether Mario Draghi will echo other Governing Council members’ dovish statements recently. The two elements are closely intertwined. The inflation forecast is only just consistent with the ECB’s inflation target and even a limited downward revision would legitimately call for more easing. At this juncture, we feel it is too early for Draghi to join the “verbal intervention” camp, while we also think the central bank will unveil a new batch of forecasts that will be very close to the March version. In our view, the weak state of the global economy and the weak pass-through of the decline of the Euro to European inflation should be valid sources of concern for the ECB, but at the same time the return of the EUR/USD exchange rate to the safe range around 1.10 gives the central bank ample time to ponder the data flow and bet on a reacceleration in US economic activity in 2H15. The safe course of action, against this background, is for Draghi to keep his powder dry and avoid elaborating too much on a continuation of QE after September 2016. This would call for keeping the forecasts almost unchanged from the March version

Credit Agricole: We remain of the view that the single currency is facing only limited upside risk from the current levels, especially ahead of this week’s ECB monetary policy announcement. There is little likelihood of ECB President Draghi sounding less dovish. On the contrary, medium-term inflation expectations returning to multiweek lows may suggest that domestic conditions are not yet strong enough to stabilise price developments sustainably. Given the central bank’s strong focus on the EUR itself as a driver of price developments, it is possible that the currency will be mentioned. As a result we remain of the view that EUR rallies should be sold, in particular against the USD.

BNP Paribas: With the ECB committed to returning CPI and inflation expectations back towards 2.0%, we expect President Draghi to once again use his post ECB press conference Wednesday as an opportunity to push back against the idea that purchases could be curtailed. Updated staff projections will also be released, and, while inflation expectations will likely be revised up slightly, we would emphasize that the staff’s estimates will assume continuation of the purchase program. We remain broadly bearish on the EUR and would favour fading this latest rebound in EUR crosses.

SocGen: Today’s news come from the ECB meeting (no policy move but the Bund sell-off is an interesting backdrop to the press conference)...Bund yields and the Euro have both bounced by more than expected. That highlights lack of liquidity in the bond market and positioning in FX (yes, as CFTC data showed, there really were still big shorts in the Euro). From a technical pit of view, our team highlight EUR/USD 1.1040-80 as ‘decisive’ support and 1.1315 as the key level to watch on the upside.

Morgan Stanley: While it has retraced part of its gains, the trade-weighted EUR is still significantly elevated from its lows in early April, very much against the wishes of President Draghi and the ECB. We expect the ECB to reiterate its easing bias to keep its QE impact intact.

Credit Suisse: We expect the ECB meeting to provide little new guidance, with President Draghi reiterating the need to keep QE open-ended until September 2016 or beyond. New economic forecasts should show broadly unchanged GDP growth rates and slightly higher inflation projections for 2015

UBS: UBS expects ECB to keep policy rates on hold, and to reiterate its current stance rather than reveal any surprises.

Danske: The main event today will be the ECB meeting. We do not expect any policy changes or new signals. Draghi is likely to continue to signal a firm commitment to continue the asset purchases until September 2016. Focus will be on a) the Greek situation, b) the frontloading of ECB purchases and how much flexibility there is in its purchases and c) a likely small lift to its inflation projection for 2015 following the rise in the oil price since the projections in March.

NAB: We get the ECB today. That appears to be somewhat of a sideshow to all the Greece negotiations, but with EUR vulnerable to more (or less) bond buying, there is likely to be a short term focus on what Mr Draghi has to say. Policy is not expected to be changed; forecasts may be revised higher. The risks surrounding Greece, remain key for markets.

ANZ: The euro firmed on higher than expected core inflation data and hopes of a resolution to the ongoing Greek debt negotiations surfaced. It will be interesting to see how the markets digest Draghi’s press conference tomorrow following the ECB policy meeting as he needs to balance the existing forward guidance against the still fragile euro area recovery and gradually improving inflation data.

RBS: The ECB has repeatedly noted that its forecasts for inflation and growth assume full implementation of the ECB’s announced programs. As a result, even upward revisions to inflation and growth projections, if they come, are likely to be met with a firm push-back against tapering expectations by President Draghi in the press conference. If forecasts are indeed revised up, it may keep Euro-area reflation concerns on the table but the language from ECB President Draghi should remain clearly dovish, even if not necessarily new. The Q&A will likely give President Draghi an opportunity to address the issue of “frontloading” QE purchases, and we expect President Draghi, if asked, will highlight the context of market functionality rather than a change in stance, timing, or intent of its asset purchase program. With Greece and its creditors seemingly far apart and the EU and IMF expected to submit a proposal to Greece, questions on Greek developments may dominate the Q&A session. Services PMI estimates for May are set to be revised in the Euro-area as well.

SEB: No changes to the current policy is expected. However we believe that ECB would like to send the signal that it is too early to speculate on the reduction of monthly bond purchases and expect a small upgrade of the 2015 inflation projection. There will also be a lot of attention on Draghi’s press conference where the market is looking for clarification on ECB’s stance on Greece and also ECB’s plan to frontload QE ahead of the lower liquitidy during the summer.

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