Earlier previews of today's monetary policy meeting and Draghi press conference

Here are Morgan Stanley with their thoughts ... in summary:

  • This week's press conference will likely deliver a balanced message.
  • The forward guidance will evolve, but gradually.
  • We expect the next change in March.
  • We see no more QE from October this year and the depo rate rising in March 2019.

More:

meeting ... likely to be scrutinised ... for clues on when the central bank's forward guidance will change once again - and how.

  • This will likely happen in March, when we project inflation to start rising again and the new ECB staff projections are likely to show higher inflation.
  • A more clear-cut indication that QE will end from October as we forecast is likely to come in June, we think.

We doubt that the Governing Council has already decided how to communicate the next policy shift to the market. Apart from the tone and content of future press conferences and speeches/interviews, we see two possibilities.

  1. The first one is to make the QE easing bias more symmetric, by saying that the ECB stands ready to increase the horizon of the asset purchases if needed, but dropping any reference to a potential increase of their monthly size once again.
  2. A second way, perhaps after this step, is to make the programme closed-ended, by no longer saying that it could buy beyond September.

Once QE comes to an end, the central bank - towards the end of this year - will probably change the forward guidance on rates too, and indicate that the depo rate will move some time after the net asset purchases are discontinued, rather than a long time after.

We expect the first 15bp depo rate hike to -0.25% in March 2019.

  • The market has more or less converged to this long-standing view of ours, and we now believe that the timing of the first hike is 'correctly' priced.

A matter of timing:

The first press conference of the year is unlikely to deliver any new policy announcement. However, we think that the introductory statement and the Q&A with President Mario Draghi will be important to get a sense of how close the Governing Council is to changing its communication once again.

On balance, we believe that the next incremental shift in tone and/or forward guidance will likely take place in March, when an update of the macroeconomic staff projections - which will likely show higher inflation - will be published. A more decisive signal that QE will end from October is unlikely to come before June, in our view.

(bolding mine)