ECB to announce a 12-month extension of QE – TDS

Analysts at TDS are looking for the ECB to announce a 12-month extension of QE at €30bn/month with its 12:45pm BST press release and leave all forward guidance and its reaction function unchanged.

Key Quotes

“The 1:30pm introductory statement is likely to be little changed with continued shots at EUR, as any surprises would have come in the earlier press release. In the Q&A, that’s where Draghi can really hammer a dovish message. He can reiterate the commitment to sequencing and the “or beyond if necessary” language on QE, keeping the door wide open to tapering extending into 2019, particularly in the case of tighter financial conditions (i.e. stronger EUR). Draghi can also bring back the “sustained market presence” wording from December 2016 that helped support last year’s dovish taper. He may also draw attention to the growing reinvestment flows, so even post-recalibration, gross QE flows are little changed.”

“For rates, we expect that 10y bunds will end the day 4-5bps lower if all goes as we expect, with the curve steepening. In terms of the front-end, markets could push the first rate hike to at least 19Q2. In FX, we see near-term downside risks for EUR during all three segments of the announcement, and think that EURUSD could end the day around 2 big figures lower.”