ECB in no mood yet to change its tune - Nomura

Having announced at its last meeting that it would continue its asset purchase programme at a rate of €30bn per month from January until September 2018, analysts at Nomura doubt the ECB will unveil any further policy changes at its meeting on 14 December.

Key Quotes

“The key macro focus at this meeting should instead be the update of the ECB’s staff forecasts. We expect modest upward revisions to the GDP growth projections for 2017 and 2018. And notwithstanding some underwhelming inflation data for November, we expect a modest upward revision to the headline inflation projection for 2018 as well thanks to higher-than-expected oil prices.”

“We still expect growth and inflation outcomes to surprise the ECB on the upside in the immediate months ahead. Accordingly, we remain confident that the ECB will slowly rethink its monetary policy stance in the opening months of next year, paving the way for a cessation of the APP from September 2018 and a modest 10bp increase in the deposit facility rate in December 2018.”

“Rates Strategy: Bunds yields have fallen almost 15bp since 26 October – back down to September lows. The EONIA spike and widening in cross-currency basis has further prevented Bund yields from rising. Going into the meeting then, risks to Bund yields are asymmetric, given the ECB would be hard-pressed to raise its dovish rhetoric. However, given our economists’ expectations for only modest growth and inflation forecast revisions, we think rates markets should remain contained on the back of the ECB meeting. With regards to the EONIA price action, of interest would be any acknowledgment from the ECB that the benchmark is in more urgent need of reform.”

“FX Strategy: We do not expect any great EUR reaction to the ECB announcement, but keep our medium-term bullish view on EUR. Even after the fairly disappointing October decision, EUR has been trading resiliently, supported by the improving basic balance of the BoP, in our view. Even though the ECB may provide no fresh catalysts next week, EUR downside risks should be limited. Into the middle of next year, we expect ECB communications to turn gradually more hawkish to let markets price the end of QE in September. Then, we think another acceleration in EUR appreciation is likely, while range-trading continues for now.”