2 Dec 2014
Trouble under the Christmas tree for Eurozone?
FXStreet (Barcelona) - The ING Research Team note that with little action and much emphasis on the feel-good factor and good team spirit, this week’s ECB meeting should fit into the contemplative pre-Christmas atmosphere, but new trouble could come faster than hoped for.
Key Quotes
“The latest series of better-than-feared economic data for the Eurozone should give the ECB some comfort to remain on hold at this week’s meeting. GDP growth in 3Q14 came in slightly better than expected, confidence indicators stabilised further, core inflation remained unchanged and monetary developments were as lacklustre as ever. In sum, not a rosy picture for the Eurozone, but compared with the assessment of November, the situation has improved rather than worsened.”
“Looking ahead, the latest drop in energy prices is both a blessing and a curse for the ECB. While lower energy prices should support economic activity, they will also lead to a lower inflation forecast. This should be reflected in this month’s ECB staff projections.”
“Lower inflation projections would clearly increase the (self-inflicted) pressure on the ECB to take additional measures. However, yesterday’s announcement that the ECB had purchased ABS for
less than €0.4bn last week and that the total amount outstanding of the covered bond and ABS purchases hardly exceeds €18bn shows that increasing the balance sheet by roughly €1tr will not be an easy job. Consequently, the ECB could be tempted at this week’s meeting to at least reduce the interest rate on the upcoming TLTRO to stimulate the take-up.”
“The best way to check the ECB’s determination to start sovereign QE will be to follow the ECB’s communication on the role of the balance sheet. Since Draghi mentioned the size of the balance sheet as a kind of new soft target, QE speculations have become more credible. However, it is obvious that not all ECB members have embraced Draghi’s view.”
“As ECB board member Lautenschlaeger articulated last weekend, “the ECB has not decided on a target for…the balance sheet, it has rather unanimously expressed an expectation. A kind of mechanical expansion of the ECB’s balance sheet cannot be an end in itself”. A clear sign that underneath the cosy Christmas feeling with ringing bells and the smell of gingerbread in the air, there seems to be a slumbering conflict at the ECB, which – as in many families – could eventually lead to trouble under the Christmas tree.”
Key Quotes
“The latest series of better-than-feared economic data for the Eurozone should give the ECB some comfort to remain on hold at this week’s meeting. GDP growth in 3Q14 came in slightly better than expected, confidence indicators stabilised further, core inflation remained unchanged and monetary developments were as lacklustre as ever. In sum, not a rosy picture for the Eurozone, but compared with the assessment of November, the situation has improved rather than worsened.”
“Looking ahead, the latest drop in energy prices is both a blessing and a curse for the ECB. While lower energy prices should support economic activity, they will also lead to a lower inflation forecast. This should be reflected in this month’s ECB staff projections.”
“Lower inflation projections would clearly increase the (self-inflicted) pressure on the ECB to take additional measures. However, yesterday’s announcement that the ECB had purchased ABS for
less than €0.4bn last week and that the total amount outstanding of the covered bond and ABS purchases hardly exceeds €18bn shows that increasing the balance sheet by roughly €1tr will not be an easy job. Consequently, the ECB could be tempted at this week’s meeting to at least reduce the interest rate on the upcoming TLTRO to stimulate the take-up.”
“The best way to check the ECB’s determination to start sovereign QE will be to follow the ECB’s communication on the role of the balance sheet. Since Draghi mentioned the size of the balance sheet as a kind of new soft target, QE speculations have become more credible. However, it is obvious that not all ECB members have embraced Draghi’s view.”
“As ECB board member Lautenschlaeger articulated last weekend, “the ECB has not decided on a target for…the balance sheet, it has rather unanimously expressed an expectation. A kind of mechanical expansion of the ECB’s balance sheet cannot be an end in itself”. A clear sign that underneath the cosy Christmas feeling with ringing bells and the smell of gingerbread in the air, there seems to be a slumbering conflict at the ECB, which – as in many families – could eventually lead to trouble under the Christmas tree.”