ECB Preview: Major Banks expectations from June meeting

Today, we have an all-important ECB meeting for the month of June, and as we get close to the decision timings, here are the expectations as forecasted by the economists and researchers of 9 major banks for today’s meet.

Most of the researchers and economists are forecasting, that the ECB will likely remain on hold this month and offer few fireworks, while maintaining its easing bias. In addition, they are expecting further easing on the forward guidance side and a cautious tone on the TLTRO III terms.

BBVA

According to the Research Department at BBVA, the central bank will retain its dovish tone. They see no significant changes to its forecasts. 

“At June meeting, the ECB is expected to retain its dovish tone and its readiness to act if needed. No changes are expected on forward guidance yet. Moreover, the central will unveil the final conditions of the upcoming TLTROIII. The cautious tone could be reinforced on the back of growing risks due to global concerns after the escalation of trade war tensions and Brexit amid the Eurozone slowdown and the low inflation expectations.”

“The ECB will maintain that risks for growth remain tilted to the downside. We expect the central bank to unveil the TLRO III final conditions, possibly setting a negative spread of at least -20bp on the average MRO for those banks that fulfill the lending benchmark in order to encourage the take-up of liquidity. The final take-up will very much depend on the final cost.”

“The ECB is likely to maintain its forecasts broadly unchanged for 2019 (GDP: 1.1%; HICP: 1.2%), but heightening trade war and increasing political uncertainty could lead a slight downward revision to its outlook for the forecast horizon (March staff forecasts GDP: 1.6% in 2020 and 1.5% in 2021; HICP: 1.5% in 2020 and 1.5% in 2021).”

TD Securities

“Despite being prepared to throw all tools on the table for this meeting, we expect few fireworks, though TLTRO III terms are likely to be easier than markets expect.”

“Otherwise, risks are tilted toward a further easing on the forward guidance side, but growth is likely to be revised up a tick, even if inflation sees a small downward revision on the back of weaker core.”

Danske Bank

“Today's highlight is the ECB meeting, with a policy statement to be released at 13:45 CEST and a press conference at 14:30 CEST. We expect the ECB to maintain its easing bias, with no new additional stimulus measures announced.”

“The update of the staff projections is unlikely to change much for inflation, but we see a downside risk to the 2020-21 growth forecast from its already low level. We will also get more information on the TLTRO3 terms, which we expect to be favourable in light of the ongoing struggles of the economy.”

ANZ

“Geopolitical and protectionist risks have risen recently, increasing the downside risks to growth against a faltering domestic manufacturing expansion and modest growth, at best.”

“We expect the ECB to articulate a dovish assessment of developments when it meets this week and indicate that it remains open to deploying whatever policy tools are necessary to boost inflation if needed.”

“Maintaining ECB relevance and credibility in the current low inflation climate points to a growing need to update forward guidance soon.”

ABN AMRO

Nick Kounis, head of financial markets research, suggests that the ECB will react to a more prolonged economic slowdown by relaunching QE.

“Concerns about low inflation and low inflation expectations were already building even under the ECB’s more optimistic scenario, while ongoing sub-trend growth will make it more likely that inflation will significantly under-shoot the price stability goal over the central bank’s policy-making horizon.”

“An announcement of APP-II is likely by the end of the year, with actual purchases starting in January 2020 (though it could be launched early). We assume 9 months at EUR 70bn a month and a total size of EUR 630bn.”

“A small rate cut (-10bp) is possible but for now we assume that interest rates will remain on hold at current levels during our forecasting horizon.”

ING

“The latest drop in (market-based) inflation expectations, combined with somewhat higher uncertainties surrounding the growth outlook after the latest round of trade conflict, has triggered speculation about another rate cut. In our view, this speculation is premature. However, we expect the ECB to convey a slightly more dovish tone, probably with an announcement of favourable TLTRO-3 terms.”

“The ECB has turned off cruise control and is back to good old data-dependence. Knowing that actually there is not a lot it can do to really kick-start growth if needed, the ECB will stick to its current easing bias, adding a dovish comment here and an easing element there.”

“New pressure from financial markets has increased the probability that the ECB will reveal (some) details of the new TLTROs this week. Under pressure or not, the ECB will do everything it can to keep the “whatever it takes” spirit alive.”

Westpac

“The focus of the ECB policy meeting should be not on interest rates, which are firmly on hold but on the details of the previously announced liquidity provision via targeted long term refinancing operations (TLTROs) and updated growth and inflation forecasts.”

“The mood was gloomy into the March forecasts but Q1 Eurozone GDP growth was a little firmer than feared. While rates will be on hold, if the ECB is sufficiently worried about e.g. US-driven trade tensions, they could extend the forward guidance again. It is currently for rates “to remain at their present levels at least through the end of 2019.”

Nordea Markets

“In addition to the TLTRO details, the markets will put a lot of focus on what the ECB says about the growth outlook and what the chances are of further easing measures beyond the TLTROs and extended forward guidance, such as rate cuts.”

“TLTRO-III terms will probably be less appealing than TLTRO-II terms. Therefore, it is hard to see TLTRO-III as easing, unless substantial sweeteners are added (such as including mortgages as eligible loans).”

“We expect that the ECB will extend its forward guidance, however markets are already pricing a clear probability of a further rate cut from the ECB hence it should not be a major market mover.”

“We see risk/reward tilted towards a market reaction with a slightly stronger EUR and higher EUR rates, although Draghi has proved many times that he can be more dovish than the markets expects. This time it will be harder; markets expect a rate cut, very negative outlook for the euro area is already priced in and we expect the TLTRO-III terms to be less appealing than the TLTRO-II terms. Further, Draghi is unlikely to open the door more to rate cuts compared to what he already did in April, while the conclusions on the ECB’s review on the possible side effects of negative rates will probably not be ready yet.”

Rabobank

According to analysts at Rabobank, there is some risk of further downgrades to the ECB projections and the scene is set for an announcement of the TLTRO-III modalities.

“We expect the ECB to set the interest rate at MRO flat, with a potential discount to MRO-20bp.”

“Still, the ECB faces a clear risk of not appearing dovish enough amidst rate cut expectations.”

“Policy rates

• Forward guidance to remain unchanged at “through the end of 2019”.
• In practice, we expect the first deposit rate hike to be delayed until June 2021.
• We don’t expect a tiered deposit rate in the foreseeable future.”

“Asset Purchase Program

• No changes to the reinvestment program or its forward guidance.”

“LTROs

• We expect a decision on the modalities. We look for a base pricing of MRO flat and a discounted rate of MRO-20bp if targets are met.”