"First, inflation expectations continue to fall. The 5y5y inflation swap for the eurozone has been trading in the 1.75-1.85% range recently, down from 2.00-2.10% at the September ECB meeting. Moreover, the ECB‟s own inflation forecast for 2015 are likely to be revised down substantially."
"Second, the sharp drop in energy prices should lead to very low headline inflation figures in the next few months (potentially negative readings according to NORI), and this creates further asymmetry around inflation expectations."
"Third, the trade-weighted euro is actually up since the October and November ECB meetings. The magnitude is not huge (around 1% on the TWI), but this momentum is in the wrong direction, at a point in time when more and more ECB governing council members are highlighting the exchange rate as a key transmission mechanism for weaker monetary policy into the economy. "
"The ECB may not be able to agree on full-blown QE at the December meeting. But ECB Vice President Constancio hinted on November 26 that the ECB is likely to buy sovereign bonds if it judges that current measures are insufficient to reach the desired balance-sheet expansion. One possibility is to expand the menu of private sector assets being bought to include corporate bonds."
"It may not be possible to buy more than EUR200-300bn over a one- to two-year horizon. But such liquidity considerations have not stopped the ECB from buying ABS. Hence, we see that as a clear possibility. Another option is to spell out a clearer roadmap as to when sovereign bond purchases would be triggered, to provide a “contingent easing signal”.
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