ECB is unlikely to implement additional measures - Rabobank

Philip Marey, Senior US Strategist at Rabobank, suggests that today’s main European event is the ECB meeting in Vienna and they do not expect the ECB to change its policy stance.

Key Quotes

“The ECB is unlikely to implement additional measures so long as there are still previous decisions pending full implementation – i.e. the first TLTRO-II allotment, due on 24 June, and the start of corporate bond purchases (CSPP). This was, broadly speaking, also the message conveyed in the minutes of the 20-21 April meeting.

We expect most financial institutions to switch out of the original TLTROs to the new TLTRO-II in the June operation. Our base scenario is for an additional demand of EUR 120bn across all TLTRO-IIs (which may be skewed towards to first two operations). The ECB has already unveiled a lot of CSPP details and has published an extensive Q&A on its website.

A recent article by Reuters – citing central bank sources – suggested that the bank aims to gradually raise the monthly pace of purchases under the CSPP to 5-10 bn euros. Our house view is that purchases are likely to be at the lower end of this range (EUR 4.7bn to be precise), although this is based on the (conservative) assumption of no material change in issuance.

Moreover with the market implied odds of a Fed hike having rebounded sharply in the past week on the back of FOMC officials’ comments, which has resulted in renewed EUR weakness, this may be seen as supporting the outlook for growth and inflation. This is especially relevant since it has gone hand in hand with a rise in commodity prices and has come against the backdrop of a fairly robust 0.5% QoQ growth rate for the Eurozone economy in Q1.

Although this suggests that today’s press conference may well be an uneventful meeting, there is still plenty of event risk ahead. This by itself should be sufficient for the ECB to maintain a ‘dovish’ stance.”