The ECB after Jackson Hole: taper tiptoeing will continue - ING


Analysts at ING explained that after all the excitement about possible Draghi fireworks in Jackson Hole, the just delivered speech was an anti-climax, a non-starter. With no hints at tapering or the current stance of monetary policy, markets will now look out for the 7 September meeting. The demand for an ECB game plan on tapering will only get stronger and Draghi will have to address it. The cautious taper tiptoeing will continue. 

When the ECB currently looks at the Eurozone, it sees a modest party with people enjoying themselves. The party is far from over but it could probably do with fewer QE drinks served by one of the hosts: Mario Draghi. In fact, serving less would come in handy as the drinks in Mario’s fridge are running low. But how to tell the party guests? And how to do it without getting called out as a party pooper?

In more economic terms, Mario Draghi’s latest speeches have illustrated that the ECB is paving the road towards the beginning of the QE exit but it still does not know how and when to put it into practice. Tonight’s Jackson Hole speech only confirmed that even if the ECB had a plan, they are not willing to share it (yet). Draghi came to Jackson Hole to deliver a non-monetary-policy speech and that is what he just did. Don’t take this as a dovish signal. Only as a signal that 7 September will be the big day. 
Still, the ECB will have to prepare and present a game plan for tapering. This is why we think that in the run-up to the next ECB meeting on 7 September, when the ECB is likely to task the committees to look into tapering, the members of the Governing Council will have two important home assignments to solve before meeting in Frankfurt: besides the scarcity of assets, what are the economic arguments behind tapering and how should it be implemented?

In our view, the main arguments in favour of tapering are the successful defeat of the deflation risk, the strong economic recovery and bond scarcity. Tapering should be a cautious and very gradual withdrawal of some monetary stimulus, preferably without causing any tightening of financial conditions. The best option to do this could be a tapering announcement to reduce the monthly purchases from €60bn currently to €30bn starting January 2018 for at least six months combined with an extension of the list of eligible assets for QE purchases. This could exactly be what the minutes of the last ECB meeting described as “the Governing Council needed to gain more policy space and flexibility to adjust policy and the degree of monetary policy accommodation, if and when needed, in either direction”.

We expect the ECB to at least present a game plan at the September meeting, probably enriched by a clear message that the relevant committees have been tasked to investigate options for tapering. A dovish tapering which avoids the so-called unwarranted tightening of financial conditions is what the ECB is aiming at. Taper tiptoeing will continue.
 
     
 
 
 
 
 
 

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended content


Recommended content

Editors’ Picks

EUR/USD extends slide below 1.0700 on stronger USD, EU political angst

EUR/USD extends slide below 1.0700 on stronger USD, EU political angst

EUR/USD stays under bearish pressure and trades at its lowest level since early May below 1.0700. Unabated US Dollar demand amid risk aversion and looming EU political uncertainty exert downside pressure on the pair heading into the weekend.

EUR/USD News

GBP/USD slumps to multi-week lows below 1.2700

GBP/USD slumps to multi-week lows below 1.2700

GBP/USD extends its decline on Friday and trades at its lowest level in nearly a month below 1.2700. In the absence of high-tier data releases, the US Dollar continues to benefit from souring market mood, forcing the pair to stretch lower in the second half of the day.

GBP/USD News

Gold clings to recovery gains at around $2,330

Gold clings to recovery gains at around $2,330

Following Thursday's pullback, Gold holds its ground on Friday and trades in positive territory near $2,330. The benchmark 10-year US Treasury bond yield edges lower toward 4.2%, helping XAU/USD push higher ahead of the weekend.

Gold News

Monero price poised for a downward correction

Monero price poised for a downward correction

Monero price has encountered resistance at a critical level. The technical outlook suggests a potential short-term correction as momentum indicators signal a bearish divergence.

Read more

Week ahead – RBA, SNB and BoE next to decide, CPI and PMI data also on tap

Week ahead – RBA, SNB and BoE next to decide, CPI and PMI data also on tap

It will be another central-bank-heavy week with the RBA, SNB and BoE. Retail sales will be the highlight in the United States. Plenty of other data also on the way, including flash PMIs and UK CPI.

Read more

Forex MAJORS

Cryptocurrencies

Signatures