ECB: a call for a September tapering announcement - Nomura

Analysts at Nomura explained that against their expectations, the ECB maintained its guidance on the asset purchase programme (APP) by stating that “it stands ready to increase the size of the programme in terms of size and/or duration”. 

Key Quotes:

"On balance, we remain comfortable with our view for now that the ECB will announce a tapering plan at the next meeting on 7 September. No clear message from the ECB and President Draghi on the tapering announcement in September may slow the momentum of EUR appreciation, after recording a new high today. However, Mr Draghi’s benign view on the recent EUR appreciation should limit room for retracement, in our view. The latest flow picture also shows an improving medium-term flow picture and thus, we keep our structural bullish view on EUR. 

AUD has touched a multi-year high, and market participants are seemingly willing it to break higher. From a fundamental perspective, we remain of the view that the rally in the AUD/USD is on shaky foundations, and the market looks to be pricing in too much positivity on the AUD side and across broader risk markets. Rather than lean against the current move in spot, which is susceptible to a further near-term squeeze higher, we think optionality is preferable. We enter an AUD/USD 2m 0.7670/0.7530 put spread. 

Finally this week, the BOJ left its policy unchanged as widely expected. The Bank again pushed back the expected timing for reaching its inflation goal to around FY2019, while lowering its inflation forecast broadly from FY2017 to FY2019. The less optimistic inflation forecast should not lead to immediate policy action, but the BOJ needs to keep its current policy framework unchanged for longer as inflation momentum disappoints. BOJ policy normalisation is still a way off, while foreign central banks are embarking on normalisation. Immediate JPY reactions were muted. 

However, into September when the Fed and ECB are expected to communicate the adjustment of their balance sheets, the BOJ’s unaltered dovish stance should gradually support cross yens. Even if foreign yields rise as central banks turn less dovish, the Bank’s commitment to its yield curve control will stay unchanged for now, widening rate differentials."