Fra BNP Paribas:
Eurozone:
- Hawkish arguments for ECB tapering:
1) Running out of German bonds to buy;
2) Don’t want to break capital key;
3) Don’t want lower ST yields;
4) New forecast could show inflation close to 2% in 2019;
5) See too-low rates hurting finance sector;
6) Headline inflation should soon move up to over 1%;
7) Need to get governments to do more fiscally.
- Arguments against ECG tapering:
1) Headline inflation at 1% early next year is too low;
2) Core inflation is still low;
3) Tapering is tightening;
4) ECB growth forecast is too optimistic;
5) Would push up EUR and subdue inflation;
6) Premature
- Negative market reaction to taper talk intensifies ECB dovish rhetoric, signalling more easing in the cards.
- EU Commissioner Moscovici suggests Italy may get all or part of fiscal budget flexibility it has requested.
