ECB meeting: It’s not Autumn yet - ING

"The most exciting part of today’s ECB meeting came at the start of the Q&A session," notes Carsten Brzeski, Chief Economist at ING.

Key quotes:

"In the good old manner of former President, Jean-Claude Trichet, Mario Draghi used the first question by journalists not to answer the question, but to answer an unasked question and deliver the ECB’s main policy message. This main policy message had several elements:

• The next meeting in October will be used to “calibrate” QE beyond the end of 2017 
• Most ECB members see the stronger euro as a concern, which requires close monitoring
• The relevant committees had already been in action and were tasked to conduct further work on different tapering scenarios
• Various scenarios on how QE could be adjusted in terms of size and length were already discussed today
• Changes to the issuer limits were not discussed
• The emphasis on the strong recovery means that the ECB prepares a narrative in which tapering is the removal of stimulus but not tightening
• No changes to the sequencing had been discussed by the ECB"

"All of this did little to calm the FX market as the euro exchange rate breached the 1.20 EUR/USD level during the news conference, the reason probably being that the ECB’s real game plan is still unclear. What in our view, though, is clear is that the ECB is not so much concerned about the past appreciation of the euro but rather on its future appreciation. However, given that Draghi repeatedly mentioned the forward guidance on interest rates, favourable financing (not financial) conditions and stressed that sequencing had not been discussed, it seems as if the ECB is willing to somewhat tolerate a further strengthening of the euro so long as interest rates across the entire spectrum remain low."

"In sum, even though the ECB failed to present details of a game plan, the ECB’s intentions are clear: prepare a very smooth tapering without pushing up interest rates and with as little further euro appreciation as possible. In our view, this could mean a somewhat softer tapering than we initially thought, announcing at the October meeting a reduction of the monthly purchases to no less than 40bn euro starting in January. Whether the ECB will succeed will only be known after the Third Act in October. Until then speculation will continue as market participants will probably not live up to an old song by Green Day. “Wake me up when September ends"."