ECB Preview: No explicit change, hawkish bits - Danske Bank

Analysts at Danske Bank, do not expect explicit new forward guidance, but they see some hawkish bits.

Key Quotes:

“While we expect forward guidance to be changed in July, we can not rule out the possibility of it coming already next week given the recent comments from Praet. In our view,we have not received any data that should warrant the ECB moving already now.The ECB’s actions, which were confirmed in March, have been reactive when removing stimuli and not proactive. In our view, a change to the forward guidance next week would also question the mantra of ECB being reactive. Should APP guidance change next week, we expect the ECB to step up its rhetoric on rates,reinforcing the depo rate guidance.”

“We expect the ECB to raise its headline inflation forecast for both 2018 and 2019, due to a combination of higher energy prices and currency depreciation. Although headline inflation surged to 1.9% in May on the back of strong energy price increases, we expect the ECB to remain cautious and focus on the underlying inflation pressures.

“We do not expect big changes in the core inflation forecast. Although wages have started to pick up, core inflation has mostly surprised on the downside in recent months and hence we think the ECB might want to see further evidence before raising its 2019 core inflation forecast."

“Given that euro area Q1 GDP came in at 0.4% q/q, while the ECB assumed 0.7% q/q in its March staff projection, the lower Q1 print suggests a downward revision of the 2018 growth estimate to 2.2% from2.4%in March.”