Danske Research Team
Danske Bank A/S
The ECB president Mario Draghi is returning from summer holidays next week and all eyes will be on his communication following strong economic data but also a significant euro appreciation. Draghi is scheduled to give a keynote speech in Germany on Wednesday followed by his participation at the US Jackson Hole Symposium on 24-26 August. Market participants have speculated on Draghi seizing the opportunity to hint at QE tapering at Jackson Hole, which would be very symbolic following his indirect QE announcement at the symposium three years ago.
The speculation about Draghi signalling some kind of QE tapering at Jackson Hole was sparked after his hawkish twist at the ECB Forum on Central Banking in Sintra in June. Since then, a number of factors have supported the case for a hawkish view. First, the deflation risk has abated further while the stronger growth momentum – which Draghi was very focused on at Sintra – has continued. Second, the ECB's purchase pattern still suggests the QE restrictions are binding, implying the ECB could be looking for some sort of excuse to taper the purchases as the pressure for changing the restrictions again is likely to be muted given the above. Finally, Draghi will be among global central bank colleagues, which has on previous occasions resulted in him expressing a more hawkish stance as also seen at the ECB Forum in Sintra.
On the other hand, there are arguments for a continued dovish stance and in our view, they will dominate, implying Draghi will not send a new signal about QE tapering. The main argument why Draghi will not turn hawkish and signal QE tapering is that this could fuel the euro appreciation, thereby putting downward pressure on the outlook for growth and inflation. This is in line with the communication in the ECB minutes from the meeting in July where ‘concerns were expressed about a possible overshooting in the repricing by financial markets, notably the foreign exchange market' and that ‘favourable financing conditions could not be taken for granted'.
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