9 Mar 2016
ECB: Finally will do what it should have done a long time ago - TDS
According to analysts from TDS, tomorrow the European Central Bank will do what it should have done a while ago but it not clear if that will weaken the euro.
Key Quotes:
“We are looking for a comprehensive policy easing package from the ECB this week. Specifically, TD expects a 20 bps rate cut, an increase of €10-15bn in the monthly pace of QE, an extension of asset purchases for an additional six months (at least), and further liquidity enhancements in the form of negative rate LTROs.”
“In sum, we think the ECB will do what it should have done a long time ago and take a moderately-sized ‘kitchen sink’ approach to easing.”
“Our core scenario would normally imply a brisk resumption of the EUR downtrend. We are cautious, however, on whether this will translate into a major lurch lower in the currency. Our base case for the ECB is not without its risks. The first and most obvious of these is the risk the ECB will simply disappoint and fail to deliver the necessary stimulus—again.”
“Looking beyond the uncertainty lingering over the outcome to consider the FX implications, we note that there are two primary avenues of transmission into currencies. The first, of course, is the direct monetary policy signal for the EUR. The second, more generally, is the broader impact on investor sentiment. Traditionally, the first driver has dominated. Over the last several months, however, the influence of risk appetite has risen in FX markets. Central bank actions—and their missteps—have been a central part of this dynamic.”
Key Quotes:
“We are looking for a comprehensive policy easing package from the ECB this week. Specifically, TD expects a 20 bps rate cut, an increase of €10-15bn in the monthly pace of QE, an extension of asset purchases for an additional six months (at least), and further liquidity enhancements in the form of negative rate LTROs.”
“In sum, we think the ECB will do what it should have done a long time ago and take a moderately-sized ‘kitchen sink’ approach to easing.”
“Our core scenario would normally imply a brisk resumption of the EUR downtrend. We are cautious, however, on whether this will translate into a major lurch lower in the currency. Our base case for the ECB is not without its risks. The first and most obvious of these is the risk the ECB will simply disappoint and fail to deliver the necessary stimulus—again.”
“Looking beyond the uncertainty lingering over the outcome to consider the FX implications, we note that there are two primary avenues of transmission into currencies. The first, of course, is the direct monetary policy signal for the EUR. The second, more generally, is the broader impact on investor sentiment. Traditionally, the first driver has dominated. Over the last several months, however, the influence of risk appetite has risen in FX markets. Central bank actions—and their missteps—have been a central part of this dynamic.”