ECB PREVIEW: Euro Impact Limited as Draghi May Defend Policies
(Bloomberg) -- ECB will probably leave the door open for further cuts if needed this week, but any downside risk for the euro is seen limited, economists say in published research.
- ECB seen staying on hold by reinforcing its dovish stance after the mix of easing measures announced in March
- Bank expected to defend efficiency of its policies after recent criticism by Germany
- More details on corporate sector purchase program (CSPP) may be unveiled, though not necessarily at this meeting as the program set to start toward end of 2Q
- Goldman Sachs (Dirk Schumacher)
- ECB to keep rates unchanged, Draghi will express confidence that package unveiled in March will help steer CPI toward target
- Draghi also likely to express ECB’s willingness to respond if downside risks to growth and CPI materialize
- Draghi will also clarify that further rate cuts remain part of monetary toolbox after his comments in March were interpreted by many as closing the door for further rate cuts
- Some further details on new CSPP may be published
- Expects CSPP to be conducted in similar fashion to covered bond and asset-backed securities program, and purchases to take place in primary and secondary market; ECB will decide in discretionary way how much corporate debt to buy
- Expects an extension of APP to Sept. 2017 from March 2017 currently
- JPMorgan (Greg Fuzesi)
- No action expected this week; see next round of easing to focus on extending QE program beyond March 2017
- Chances of further rate cuts may be higher than initially thought
- ECB concerned about pressure of negative rates on banks and about fueling currency war; that said, incremental deposit-rate cuts still seem possible, as does a tiered reserve charging system; Draghi is likely to clarify the message around this at this week’s press conference
- BofAML (Gilles Moec, Athanasios Vamvakidis)
- Expect Draghi to defend ECB this week; he could also remind markets that QE is open-ended and won’t stop as long as ECB is missing CPI target
- Draghi also likely to clarify that another depo-rate cut remains available
- Expect Draghi to sound dovish but do not see a sustained market impact
- More sustained EUR weakness requires a critical mass of strong U.S. data and stable global markets allowing Fed to sound more confident
- Continue to forecast EUR/USD at parity by end-2016, expecting two Fed hikes this year
- BNP Paribas (Ken Wattret)
- ECB should reiterate this week that it stands ready to take action to deliver on price-stability mandate
- While expect the door to be left more open to further cut in policy rates than during Q&A session on March, there is limited room for maneuver
- CSPP details possible but may take longer
- Expect ECB to follow the template used for current asset-backed security and covered-bond purchase programs, suggesting no specific numeric target for monthly volume of purchases, buying in both primary and secondary markets, and opting for risk sharing
- Citigroup (Guillaume Menuet)
- Don’t expect any new measure this week
- Look for more policy measures in coming months including a refi rate cut by 5bp each in Sept., Dec. and March 2017
- Also expect a QE extension by another 6 months in Sept., adjustment to issue/issuer limit for PSPP to ~40% and 10bp depo-rate cut in March next year
- HSBC (Karen Ward)
- Draghi to convey the message that ECB can still do more
- During Q&A, expect questions related to progress with Greece and IMF and on what might happen to Portugal’s access to QE if DBRS downgrades the country on April 29
- Expects Draghi’s answers to be elusive
- UBS (Reinhard Cluse)
- Expects a debate on limits of monetary policy, ‘helicopter money’, corporate bond purchases and credit conditions at this week meeting
- Base-case scenario remains that ECB is “done” now and that it won’t add more stimulus over coming months
- Morgan Stanley (Elga Bartsch)
- It might be too early yet to get full formal details on planned buying of corporate debt under new CSPP
- Don’t expect any additional policy measures before 3Q
- Expect another depo-rate cut of 10bp in 2H and see a near even chance of ECB upping and extending QE
- Natixis (Johannes Gareis)
- Draghi likely to address recent EUR strength by downplaying comments made at March meeting that policy rates may already have reached the lower bound
- More details about future corporate-bond purchases and TLTROs in focus this week
- ECB will take a wait-and-see approach over coming months; from a long-term perspective, CPI might be too weak for ECB to remain on hold; the most likely easing step is an extension of QE program beyond March 2017
- UniCredit (Marco Valli)
- ECB’s focus remains on implementing several measures already announced; expect a strong, open-hearted defense of ECB policies
- This week’s meeting is unlikely to generate a meaningful impact on euro
- ECB is very likely to be unhappy with stronger EUR; however, there is not much Draghi can do about it, at least for now
- Commerzbank (Bernhard Gruenaeugl)
- Probably too early to add substantial detail on CSPP with still about two months to go before the actual start of the program
- The question of whether insurance corporations’ seniors could be bought or not should remain a matter of lively debate for now
- Credit Suisse (Peter Foley)
- ECB is likely to leave the door open to additional policy measures in future if economic situation deteriorates
- Nordea (Aureljia Augulyte)
- Keep long EUR/USD
- Market is pricing close to a full 10bps cut in year ahead, so EUR needs a really big surprise to get knocked
- ABN Amro (Nick Kounis)
- Focus in April meeting will be on details of corporate- bond scheme; ECB will probably reveal a relatively large eligible universe of ~EU750b
- It would include traditional non-financial corporates as well as “financial corporations other than credit institutions”
- In this category, there are many funding entities of normal corporates, real-estate corporates and insurers
- Expects ECB to also include floating-rate notes, bonds that mature within 1 year and those with an amount outstanding less than EU500m
- ING (Petr Krpata)
- Negative impact on EUR should be very limited as any strong pre-commitment to further easing should be absent
- It’s increasingly difficult for ECB to materially weaken EUR
- Despite no real action, there would probably be some dovish comments, whereby ECB stresses downside risks to economic outlook
- BBVA (Roberto Cobo Garcia)
- Draghi will likely stress that ECB keeps the door open to adopt further easing measures if needed; he will probably remark that further rate cuts aren’t out of the table
- Expect ECB meeting outcome to be negative for EUR; also expect more details on CSPP
- Credit Agricole (Manuel Oliveri, Valentin Marinov)
- ECB may not mention EUR but will keep the door wide open to more accommodation
- While EUR may recover in immediate aftermath, the longer-term risks for currency should be on downside
Alert:
HALISTER1Source: BFW (Bloomberg First Word)
Tickers 2539Z GR (European Central Bank)
People Athanasios Vamvakidis (Merrill Lynch International)
Aurelija Augulyte (Nordea Bank AB)
Bernhard Gruenaeugl (Commerzbank AG)
Dirk Schumacher (Goldman Sachs Group Inc/The)
Elga Bartsch (Morgan Stanley & Co International PLC)
To de-activate this alert, click
hereUUID: 7947283