ECB: Focus on staff projections - BBH

In view of analysts at BBH, the focus is primarily on the ECB meeting today, while ahead of the meeting, the flash PMI for December showed that growth momentum is continuing, and will likely carry over into next year.  

Key Quotes

“The composite rose to 58.0 from 57.5, while the median in the Bloomberg survey expected a softer report.  New orders were strong and the backlog increased.  Employment gains were also reported.   France reported a jump in manufacturing.  It accelerated to 59.3.  It was after 53.5 last December.   German manufacturing rose (63.3 vs. 62.5), but it was the service sector that was most impressive, jumping to 58.7 from 57.3.”

“Investors will likely focus on two elements of the ECB meeting.  First, the ECB staff, whose forecasts often are more cautious than the EC and other bodies in which governments are represented, will likely revise up its growth forecasts and it may edge its inflation forecast higher. Faster growth means absorbing the economic slack sooner.”  

“Second, while the ECB has signaled it will slow its asset purchases starting next month, it has not provided any insight into the composition.  Will it simply cut all its purchases in half so the total falls to 30 bln euros a month from 60 bln?  The corporate bond purchases program has come under scrutiny after one of the previously triple-A issues may fail.”  

“If the euro holds above the $1.1800 area, short-term participants will see it as a sign of an upside breakout and signaling another run to $1.20.  A move above $1.1860 would bolster such views.  Meanwhile, note that there are large option expires today.  At $1.18 there is a billion-euro option struck and another 828 mln struck at $1.1820.  Another option for 728 mln is struck at $1.1860.”