ECB Meeting Preview: 7 Major Banks expectations from July meet

Today, we have an all-important ECB meeting and as we get close to the decision timings, here are the expectations as forecasted by the economists and researchers of 7 major banks for the upcoming meet.

Most of the researchers and economists expect the ECB to announce no new policy signals and suggest that the initial statement at 12:45pm BST should be unchanged. In addition, they are not looking for much new information in Draghi's speech as well.

Danske Bank

“Analysts at Danske Bank, suggest that during today’s ECB meeting they expect no new policy signals after the June decisions.”

“Draghi's most recent public appearances in Sintra and at the European Parliament shed no new light on its policy stance, albeit at the EU summit he is said to have voiced concerns about private investment.”

“We will focus on potential communication on the short term downside risk stemming from protectionism.”

“Headline inflation was on target in June, but are set to decline towards the end of the year. More important, core inflation dynamics were subdued in June, and only a modest and gradual increase is expected.”

TDS

“We look for today's ECB decision to largely be a summer placeholder after all the big decisions were already taken in June. The initial statement at 12:45pm BST should be unchanged from June, and we don't look for much new information in Draghi's prepared remarks at 1:30pm either; the Governing Council will likely take some comfort from what appears to be a decent rebound in Q2 growth (the first estimate will be published next week), but that will be balanced on the downside from further protectionism fears.”

“The Q&A will likely be a bit more interesting though, as we look for President Draghi to be asked to clarify the translation issues around the ECB's forward guidance on rates. However, we think that he's unlikely to get overly specific on month-by-month rate guidance, leaving rates and FX little changed on the day.”

ABN AMRO

“This week’s ECB Governing Council meeting will be watched for further clarity on two issues.”

"First of all, whether ECB President Draghi will provide any further signals on the precise meaning of the ECB’s forward guidance on how long interest rates would remain at current levels, as set out in June."

"Our own view is that given the guidance and subdued inflationary pressures, the ECB is unlikely to hike before December 2019. The second issue concerns the policy with regards to reinvestments. The ECB did not amend its forward guidance on reinvestments in June, suggesting that there was still a lot to discuss and agree to in the other policy areas. So a change in the guidance might be on the way."

"The ECB could well change the current guidance of maintaining reinvestments ‘for an extended period of time after the end of our net asset purchases’ to ‘for an extended period of time after the first adjustment in interest rates’. As such, it would signal that reinvestments will not end until 2020 at the earliest."

Westpac

“With such clear and purposeful guidance on policy delivered in June, the July ECB meeting feels like a non–event.”

“We know that asset purchases will be tapered again from October before ending completely in December, and that interest rates are on hold until the end of next summer.”

“What then is the point of closely scrutinising the July post– meeting communications? In short, the Governing Council's assessment of global risks.”

“Of greatest significance will be their view on the effect mounting trade tensions are having on Europe's economy, both businesses and households. Also crucial to the outlook is global financial stability and market liquidity. Finally, we expect another clear warning on the threat that European politics pose to the region's long–term productivity and prosperity.”

BNP Paribas

“Although the overall tone of data has perked up since its June meeting, we do not expect the ECB to sound much different on 26 July.” 

“Increased confidence in inflation is somewhat offset by mounting concern about the implications of the trade war, suggesting caution at the ECB.”

“We think Mario Draghi will probably dodge any questions on the timing of the next rate move, referring journalists to his statement from 14 June.”

“A Fed-style operation twist, while possible, would be difficult to implement. In any case, we believe it would be unlikely to be announced at this stage.”

Deutsche Bank

“Our European economists expect Mario Draghi to aim for a “Goldilocks” tone – that is neither too hawkish nor too dovish. In their view the impression from recent press stories is that the ECB thinks the market has priced its new policy stance too dovishly.”

“Using the team’s modified Taylor Rule, they show that the market is fully pricing an escalation of trade war - a markedly worse economic scenario than the ECB’s baseline or the consensus. Without a clear materialization of the risk scenarios, they believe the market should price a first hike by end 2019 with a reasonable probability. DB’s baseline call is a 20bp deposit rate hike in September 2019 (25bp refi hike).”

Nomura

“Policy announcements at June’s ECB meeting were more surprising in their timing than content.”

“Assuming the ECB delivers on its APP guidance then – if we are right – the next move by the ECB should be to raise the depo rate in September next year.”

“There is some uncertainty as to what the ECB actually meant by “through the summer” in the context of leaving rates on hold. A recent article citing “policymakers speaking to Reuters on condition of anonymity” suggested that the wording was sufficiently vague for some to argue it is consistent with no move until the 24 October 2019 meeting while others believe it could be as soon as 25 July 2019.”

“Elsewhere, prospects have been raised of a “twist operation” (similar to that of the Fed in 2011) whereby the ECB reinvests into longer-maturity assets – while this may feature in the Q&A a direct answer from Mr Draghi may be less forthcoming.”

“Market concerns about populism, trade tensions, macroeconomic and structural imbalances (and a general unwillingness to do much to correct them), a maturing cycle and a less vibrant global backdrop are all enough to keep policymakers up at night. While Mr Draghi may be coaxed into touching on some of these issues in more depth in the Q&A that follows his prepared remarks, it seems likely that the ECB’s language regarding the economic outlook will remain relatively upbeat – as it was in June (though the staff forecasts for 0.5% q-o-q growth in Q2 may well be too high – our own view is 0.4%).”

“In short, the ECB seems more confident that inflation is on a path back towards its primary objective and that the slowing in growth in the first half of this year will to at least some extent prove temporary. This is reflected in the ECB’s upbeat staff forecasts for growth (above ours for 2019 and 2020) and inflation (1.7% in each year of the forecast – the same as our own view).”