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Here are the next steps of the ECB

4 years ago babelfish

Here are the next steps of the ECB

ECB: Arsenal 2.0 under construction, ready for December. The comment by Antonio Cesarano, chief global strategist, Intermonte

The following are the main points touched by Lagarde yesterday:

ECONOMY

  • Growth is losing strength in the services sector which has more than offset the recovery of the manufacturing sector
  • Downside risks
  • Third quarter GDP data (released on Friday 30th) will surprise on the upside. Still uncertainty about the decline in GDP in the fourth quarter
  • Inflation will remain negative until early 2021

ACTION

  • on 10 December, when the ECB evaluates new estimates on growth and inflation as well as the dynamics of the exchange rate, there will certainly be decisions
  • All instruments will be recalibrated
  • It is not ruled out even earlier if necessary: ​​Lagarde praised the advantages of remote meetings because they allow meetings to be convened even at short notice
  • Before then, in any case, Lagarde has assured that all the tools already available will be used, PEPP in the lead.
    – The ECB could anticipate and concentrate purchases in a short period – if necessary

– There will be no need for unanimity for decisions

IN SUMMARY

  • Yesterday's message from Lagarde can be summarized by a sentence from Lagarde herself: "ECB was there in the first wave and will be there in the second wave"
  • Possible actions include both qualitative / quantitative lengthening of the PEPP and QE and modifications of the TLTRO on which an ad hoc application was made and which Lagarde took to the leap to underline that “ECB is very attentive to the pandemic effects on banks”.
  • Lagarde's responses, therefore, do not seem to exclude moves already in November if Covid requests it and, in the case of Tltro, expansion of the accepted collateral and even more negative rates as well as recalibration of the reference to total loans on which the maximum ceiling is applied. that banks can pull
  • I favor the hypothesis of maneuvers already in November especially with reference to the TLTRO; otherwise the December operation will be effectively wasted if the announcement arrives at the meeting on 10 December, given the deadline of 9 December to enter the requests of the banks for the next TLTRO
  • Consequently, today's meeting of the ECB confirms the scenario of ample liquidity arriving from central banks by the end of the year with an impact on the markets, a scenario that could be evident especially from the second half of November with two main lines: "big switch" (- tech Us + tech China) and sectoral “great rotation”
  • On the interest rate front, the hypothesis of Italy spread in the 100/120 bp area by year end is confirmed with Eur-Usd in 1.15 area again by year end

This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/ecco-le-prossime-mosse-della-bce/ on Fri, 30 Oct 2020 14:55:25 +0000.