Eurozone week ahead: A new ECB, German politics and some data

Next week, the economic calendar showed the European Central Bank (ECB) will have its meeting, the first with Christine Lagarde as president. Analysts at Danske Bank do not expect changes from the ECB. They add, German politics, and the survival of the Grand Coalition, is still in flux, and investors should not get too excited about a big German fiscal policy boost in the near term.

Key Quotes:

“In the euro area, we have a very interesting week ahead of us with President Lagarde’s first ECB meeting. We do not expect any new policy messages, but think the ECB will formally launch its long awaited strategy review, although we do not expect a specific deadline. Our base case is for a significant overhaul which includes revisiting the ‘below, but close to 2%’ wording. However, it is still too early to judge the market implications. We expect the staff projections to be unchanged in the grand scheme of things, with minor revisions.”

“After the surprising win of Norbert Walter-Borjans and Saskia Esken as new SPD leaders, this weekend’s SPD party convention will be a watershed event for German politics. The new leaders have been staunch critics of the current governing coalition. Latest comments suggest SPD delegates will stop short of calling for an outright ‘Groko’ exit at the convention, instead seeking to engage in negotiations with the CDU on key demands. We think it is not a foregone conclusion that Germany is heading for new elections in Q1 20.”

“On Tuesday, we get the ZEW print for December. We look out for whether November’s rise in the expectation component continues, since the spread between ‘expectations’ and ‘current conditions’ has usually been a good predictor of upcoming rises in PMI manufacturing.”

“Thursday will also bring October’s industrial production figures for the euro area. We look out for whether the latest rebound in manufacturing PMIs is also visible in actual production figures.”

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