Fra BNP Paribas – læs hele analysen her
KEY MESSAGES
We think the ECB will deliver an easing package at its September meeting next week, comprising a 10bp deposit rate cut, rate-tiering, strengthening of forward guidance, a
relaxing of TLTRO conditions and quantitative easing at a monthly pace of EUR50bn.
However, we think QE is more uncertain now – the risk to our central case is for lower volumes or even no QE announcement at all, in which case we could see a 20bp
cut. A compromise solution could be to announce QE but to leave the details until later: this would buy more time for the ECB Governing Council to reach a consensus and
allow incoming President Christine Lagarde to ‘own’ the programme.
Strengthening forward guidance, for example by pledging not to raise rates until inflation has reached its target, would be an important sign that the Council is not resigned to lower inflation.
The QE programme’s credibility might also be bolstered if the new ECB President Christine
Lagarde ‘owned’ it by announcing the details, rather
Rates: After recent hawkish comments by ECB board members, our central case is now somewhat above current market expectations. In our view, Bunds are likely to rally as a result, inflation swaps bounce, at least temporarily, and BPTs outperform.
FX: The EUR is likely to weaken broadly, as our central scenario represents an over-delivery on QE and only a slight under-delivery on rate cuts compared with what markets are pricing in.
Equities: The impact of our central scenario would be roughly neutral on banking sector earnings in our view, depending on the size of any rate-tiering
What we expect on 12 September
A 10bp cut in the deposit rate. Risks are for a 20bp cut, particularly if the Council undershoots market expectations about QE. However, the relatively unfavourable risk-reward from further cuts (even with rate-tiering) and the need for the ECB to keep its
powder dry so it can respond to future events, particularly on the exchange rate front, suggest to us that a 10bp cut is more likely.
Rate-tiering. We expect a simple two-tier deposit rate system, where a proportion of excess liquidity is exempt (0% remuneration on a multiple of reserve requirements at individual bank level).
Resumption of net asset purchases. We expect an announcement of EUR50bn per month for an initial nine months, with most purchases (around 85%) in government bonds, complemented by covered and corporate bonds. However, we are less confident in
this view after some recent comments by Governing Council members. We see a risk of lower purchase volumes or even no QE announcement.
A potential compromise is for the Governing Council to use the September meeting to announce the resumption of purchases, with details on volumes and conditions to be decided later, most likely in December under the presidency of Christine Lagarde. This two-step announcement has a precedent in the TLTRO programme. Skilfully communicated, which we think President Draghi would be able to do, it could be the best of both
worlds.
The dual approach would keep market expectations alive and minimise disappointment,
while giving the ECB the flexibility to respond to adverse news (eg, on Brexit) as well as buying the Governing Council more time to reach a consensus.
