ECB Preview: Waiting for June – Nomura

Analysts at Nomura suggest that they are in line with the overwhelming consensus in expecting no changes to the ECB’s policy-settings at this week’s policy board meeting.

Key Quotes

“Indeed, very little new information is likely to emerge, in our view, that could meaningfully shift investors’ expectations about future ECB policy. Policymakers are unlikely to read too much into the recent spate of weaker-than-expected economic data. And while incoming core inflation data have also been subdued, that’s partly because of last year’s euro appreciation and should not – at this stage – alter the ECB’s longer-term inflation outlook.”

“In the Q&A session, Mr Draghi will likely be asked about the recent trend toward disappointing data. He will probably ascribe this in part to temporary factors such as labour unrest and poor weather. He will likely refer to the escalation in global trade tensions as well which could be of more significance in affecting sentiment toward the eurozone and an issue therefore that the ECB is no doubt “monitoring closely”. Still, with those tensions seemingly fading in recent days he is unlikely to flag this as anything more than a downside risk.”

“As for the policy outlook Mr Draghi will also likely be quizzed about the duration of the asset purchase programme (APP) and about the timing and size of future rate hikes. We doubt again, however, whether he will give much away at this point in time. More details, particularly about the duration of the APP, are likely to be revealed at the following meeting in June. Specifically, we expect an announcement in June of a tapering of the APP from EUR30bn in September to EUR15bn in October (and then to zero in November). We then expect a first hike of 15bp in the deposit facility rate (depo) in March 2019 followed by further cumulative hikes of 50bp in all policy rates between Q2 and Q4 2019.”