Halister News

(Bloomberg) -- Any tweaks to the ECB’s QE program and discussion over the central bank’s views on the capital key and negative rates would be key as easing expectations build amid lackluster economic data.

• More govt bonds trading below the deposit rate add to scarcity concerns
• Investors will watch Draghi’s press conference at 2:30pm CET for signals on whether further rate cuts are still possible given the impact on banks, insurers and pension funds (see preview)
• Follow our live blog on the rate decision and Draghi’s speech
• NOTE: Draghi’s opening remarks, Q&A in July here; account of most recent meeting

QE EXTENSION, TWEAKS

• Markets increasingly price the possibility ECB could tweak some aspects of the QE program; some analysts say they could do so as soon as today
• As well as extending the program, changes could include dropping the maturity limits, lifting issue limits or allowing NCBs to buy bonds with yields below deposit rate

BOND SCARCITY AND THE CAPITAL KEY

• With the pool of eligible bonds shrinking, some policy makers are said to prefer bond purchases being more aligned to levels of outstanding debt; most analysts agree this is politically difficult and the least likely option
• The ECB has already been quietly exceeding quotas depending on where bonds are available, according to a study
• With Italy and Spain political risk among key concerns for investors, Draghi pouring cold water on such a move could widen spreads

DEPOSIT RATE

• Given the impact of negative rates on bank profitability, the investment community thinks central banks are approaching the lower bound and will increasingly focus on alternative forms of easing
• In July, Draghi repeated the Governing Council expects rates at current or lower levels for an extended period of time; central bank watchers will be looking for any change in that language

BREXIT

• Draghi may be asked about the GC’s current thinking about the likely impact of Brexit on euro-area growth, given little news on when the U.K. will trigger Article 50 and begin the exit process, and mixed data on both sides of the channel

CSPP

• ECB may extend the program at some point by buying bonds issued by financials, though few expect any detail on that yet given the program only began this summer

FISCAL POLICY

• Draghi said in July other policy areas must contribute much more decisively to reap the full benefits from monetary policy measures -- a view he’s likely to reiterate today
• BofAML analysts say either a moratorium on banking regulation, decisive state-sponsored action on NPLs, or proper fiscal stimulus is needed to mitigate QE’s side effects

GROWTH, INFLATION FORECASTS

• The extent of any changes in the central bank’s forecasts will be seen as an indication of how aggressive the GC could be in the future
• Euro-area 2016 CPI forecast was raised in June to 0.2%, while 2017 and 2018 forecasts were unchanged at 1.3% and 1.6%
• GDP forecast for 2016 was raised to 1.6% and 2017 forecast was unchanged at 1.7%
• Draghi said in June that the ECB is against changing the inflation target as that would test the bank’s credibility

GREECE

• The pace of Greek bailout-conditioned reforms is lagging targets and some reports suggest the next tranche of the latest bailout will be delayed as a result
• That signals the ECB won’t reinstate its waiver on banks using GGBs as collateral in the central bank’s open market operations this month