ECB: Draghi to ever so gently open the door to tapering - TDS

Research Team at TDS, suggests that today’s ECB meeting looks to be potentially the most market moving since the March decision, as the ECB has a number of issues to address, and overall, TDS thinks it would be much easier to disappoint rather than over-deliver relative to consensus. 

Key Quotes

“We look for the ECB to say that it will conduct asset purchases at least until Dec 2017, but at an €80bn/month pace only through June 2017, leaving the door open for tapering beginning in mid-year.  Markets will also be eyeing updated macro forecasts, and especially the HICP forecast for 2019, as the ECB has moved forward introducing its 2019 forecasts by 3 months, likely for a good reason. We look for HICP at 1.8% in 2019, helping the ECB to justify an eventual move to tapering. However, we look for his meeting to merely open the door to tapering, and in fact for Draghi to likely go to pains to avoid using the word “taper” altogether and stick to language more in line with just adjusting the amount of monthly purchases.”

“Outside of the monetary policy decisions, the ECB will also have to deal with bund scarcity, where we think that it will drop the deposit rate threshold for its QE purchases, and at the same time relax the constraints on its Securities Lending Programme in order to mitigate the pressure on schatz.  Overall we look for Draghi to ever so gently open the door to tapering, boosting the EUR by around 1%, and on the rates side we like German 2s5s flatteners and 5s30s steepeners, as well as 10y gilt-bund tighteners.”