ECB preview: No real action before September - ING

Carsten Brzeski, Chief Economist at ING explains that next week’s European Central Bank (ECB) meeting will be dominated by Brexit. They see no real action likely before September.

Key Quotes:

“Even though market participants had been speculating about new ECB action at next week’s meeting, we believe that the ECB will keep its powder dry. In fact, the timing of the week is a bit unfortunate. It comes too late for any imminent ECB action to calm markets but it also comes too early to have a clear understanding of how severe the short-term economic damage from the Brexit vote will actually be. The only post-Brexit data available at next week’s meeting will be the readings of the July ZEW index and Eurozone consumer confidence. In combination with the recent stabilisation of financial markets, this is clearly too little information to justify new monetary action – and even more so as the last four months have already seen an enormous amount of stimulus, which will continue to support the Eurozone economy.”

“Although we don’t expect any new action from the ECB next week, new measures at the September meeting have become more likely. At least if the Brexit vote has the negative impact on sentiment and economic activity that almost every analyst expected.”

“How to tackle the problem of too little supply for QE purchases. Even without an extension of QE, the ECB seems to run out of assets to buy in the next twelve months. In particular, the drop in German bond yields is causing some headaches.”

“The biggest challenge for the ECB president at next week’s meeting should be to sound dovish and open the door for September action, without giving away too much. He might regret that almost ten years ago, the ECB stopped the tradition of a summer meeting without a subsequent press conference.”