The thoughts of 13, yep count 'em, banks ahead of the ECB today 21 July 2016
What dya mean you haven't got any favourite banks? !
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Citi: Base case: 75% probability, EURUSD -0.75%. Rates & APP remain unchanged, but a dovish press conference, enough to keep September "live". This is consistent with current market expectations and the Citi Economics view. Short rates suggest a 40% probability of a 10bp deposit rate cut by the September meeting and 80% by December meeting. What can we expect from EUR? A quick, abrupt move - and then more waiting. We are short EUR over the event based on our expected value calculations and positioning/sentiment we infer from EUR flows. Still, we have to point out that 1-week EURUSD vols are at the lows. The market has VERY few expectations into ECB that any move lower in EUR can be sustained enough to break ranges.
ING: Price action may be muted ahead of today's ECB meeting, where it looks a little too early to expect any major new directives. We do see potential for EUR/USD to drift to the 1.0850 area near term, while 1.1050/80 should limit the topside.
BNPP: We think the ECB is likely to hold its fire at its meeting Thursday, however. With the EUR softer, inflation expectations stable, and even the BOE having deferred action to August, the ECB is under no pressure to take immediate action. Still, with little expected for this meeting and the press conference likely to include reference to rising downside risks and willingness to take action,the EUR is unlikely to gain on a steady outcome.
Morgan Stanley: Market focus will be on Draghi's first press conference after finding out about the Brexit vote. Forecasts are not expected to be updated at this meeting so markets will have to wait until September until any change in policy but the tone will be closely watched....If Draghi reverses his statement from March, now saying that interest rates could be cut further then it would weaken EURUSD on the day but only lastingly weaken the currency if there are expectations of more than a 20bp cut. Suggestions of an extension of QE won't be able to weaken the EUR as further corporate bond purchases would not be able to bring down long term government bond yields sufficiently. Rates investors will be watching for any clues on how the ECB could tweak current government bond purchase programme rules to allow for any extension of QE without hitting bond availability limits, though this type of discussion could likely be left until the September meeting. We are now forecasting EURUSD towards 1.18 by the end of this year and are still long EURGBP.
BofA Merrill: EUR risk slightly to downside. Even barring any hard announcements, we expect Draghi to start preparing markets for QE extension after March 2017, which would be negative for the Euro keeping everything else constant. Although the market already expects QE extension, relaxing some of the QE constraints to keep QE open ended-such as abandoning the capital key-is not fully priced in yet, in our view. As such, the EUR impact of the meeting this week will depend on how strong Draghi's hints on QE extension are going to be and any details on how the ECB will address the existing QE constraints. Having said that, we do not expect a strong Euro move for now, and with the pressure off the ECB to over-deliver next week, the Euro may remain broadly range-bound. The Euro has found support in the rally in risk assets and the market repricing of the next Fed hike to as far as 2018. In our view, a sustained move of EURUSD below 1.10 needs either a sharp downward equity market correction, or stronger US data that force the Fed to hike this year or early 2017.
Credit Agricole: We think that this week's ECB meeting will reiterate the view that the 'Draghi put' is firmly in place. That said, we also believe that easier global financial conditions post Brexit and improving US data give the Fed an opportunity to normalise rates before long. Any indication of that in the coming days may come as a rude awakening for the markets, which see no rate hikes before 2018. EUR/USD should remain range-bound, caught between easing Brexit fears and persistent policy-divergence headwinds.
UBS: We don't expect the ECB to deliver any new monetary policy stimulus this week. Instead, the UK vote to leave the EU will likely be the key focus, while the issues in the Italian banking system are likely to feature highly as well. The ECB will also have an opportunity to comment on the first TLTRO2 auction (results announced on 24 June) and on its Eurozone Bank Lending Survey for Q2, which will be released on 19 July. Extension of QE beyond March 2017 seems increasingly likely. EUR will focus on the ECB's overall signal for direction. Most of the solutions to enlarge the pool of assets available for purchase could result in steeper curves. But, as we discuss, the link between curve steepness and EUR/USD direction is tentative at best. Instead, what matters for the currency is the overall monetary policy signal and whether it leads to a higher level of EUR rates. Market is already quite dovishly positioned, which may imply upside EUR risks. As we discuss, the market is likely already assigning a non-trivial probability to outcomes that lead to a drastic increase in the pool of assets. This has dragged the level of rates lower and equates to a dovish signal. In the absence of strong evidence to this end, however, we think the risks seem to be skewed to the upside for the EUR heading into the ECB meeting on Thursday.
TD: This month's ECB meeting should be a rather non-eventful one, with the ECB still in implementation mode. Markets will be watching for how the ECB sees the fallout from Brexit, but there we think they may be disappointed if they're looking for strong signs of further easing to come just yet. We think that another rate cut is still a good bet before year-end, but there's no immediate need to act with market conditions having held up better than we had expected and only modest downgrades to EZ growth forecasts. If anything, Draghi is likely to raise the fact that if the BoE hasn't even responded yet and the implications there are clear, there is doubtful a need for the ECB to think about how it might need to tweak its policy.
ABN AMRO: We expect the ECB to remain on hold this Thursday, though we do expect a stepping up of monetary stimulus later in the year. The Governing Council looks set to take a wait-and-see approach for two reasons. To start with, it wants to assess the impact of the monetary stimulus measures it has already announced, including the recently launched TLTRO-II and corporate bond purchase programmes. Furthermore, it wants to gauge the early impact of the UK's vote to leave the EU. The first consumer and business surveys for July are only just out this week...We expect the ECB to step up its QE programme in September (with monthly asset purchases rising to EUR 100bn from EUR 80bn). In addition, it is likely to extend the programme to the end of next year, compared to the soft deadline of March 2017 currently.
Scotiabank: While we do not think the ECB will ease rates this week, the meeting presents a risk for EUR as market participants consider the potential for signaling and expectations management ahead of the September meeting and forecast update. Policymakers are likely to reference concerns relating to the outlook for growth, the banking sector, and financial conditions. Policy options include either an extension of the time frame for the asset purchase program (beyond March 2017), an adjustment to the key ECB interest rates, or a combination of the two.
Barclays: The ECB is expected to keep its monetary policy unchanged at its meeting on Thursday, as there is no imminent pressure to ease, in our view, but markets will look for any hints on future easing during President Draghi's press conference. We believe the ECB could make announcements regarding the time and/or scope extension of its asset purchase program, accompanied by changes to its parameters at its September meeting.
RBS: The ECB is unlikely to change any of its key policy settings on Thursday. It would seem strange if the ECB were to ease policy - for UK-related reasons - a few days after the Bank of England decided to leave its monetary policy on hold. And there has been little evidence of any financial market or broader macroeconomic destabilisation from the UK's Brexit decision so far. Periphery bond markets in particular have been extremely well behaved. However we believe the door will be left wide open to some further easing in the coming months. Recent UK-related events have tuned investors' attention in to some of the area's fault-lines and there are several reasons to remain cautious about how the region's economies will evolve from here. Debt-related challenges in the Italian banking sector and broader issues concerning political and geopolitical stability are clearly some of those major fault-lines. Underlying growth and inflation momentum in the meantime is already pretty weak and market-based inflation expectations are hovering close to record lows.
BTMU: The ECB meets on 21st July and we expect more of what we've had at recent meetings - continued dovishness but a message that monetary easing actions have already been taken and that the ECB will take some time to assess the impact of those easing actions. The Brexit fallout and in particular the weakness of banking sector shares will ensure that the general tone from President Draghi is downbeat, leaving the markets speculating that further easing later this year is probable.
