Well done ECB, but less will be needed! - SocGen

Anatoli Annenkov, Research Analyst at Societe Generale, suggests that albeit with an earlier announcement, the first reduction in the ECB’s Asset Purchase Programme (APP) will take place in April 2017, as SocGen’s expected.

Key Quotes

“The programme is now intended to run until December 2017, but this forward guidance is “state-contingent” meaning that focus will need to be firmly on the data over the coming year. We expect a gradual tapering of €10bn to continue as of June 2017, with reductions of €10bn per meeting, assuming our forecasts hold steady, but also in view of the legal problems of raising the issue limit.”

“The market reaction has been favourable, which should reassure the ECB going forward. Key variables to watch going forward will be the bond yield levels and spreads in the periphery, as reduced QE may increase vulnerability (especially for Portugal). We still believe the ECB has a powerful weapon in the TLTRO, which we think will be extended in March 2017 for a year. If the growth outlook weakens due to slowing consumer confidence, allowing TLTRO 3 to be used for mortgage lending could be an effective cyclical measure for the ECB.”