PARIS (MNI) – Just about the only thing new in a sleepy August
press conference was ECB President Jean-Claude Trichet’s rosier outlook
with regard to the short-term prospects of the Eurozone economy,
analysts said Thursday.

Trichet said that growth in the second and third quarters would be
stronger than anticipated. But he quickly qualified the optimism, saying
the recovery would remain “moderate” and “uneven” and that second half
overall would not match the second quarter’s performance.

Analysts said that despite Trichet’s more sanguine short-term
view, and given that he pointedly declined to “declare victory,” there
is unlikely to be any change in official ECB rates at least until well
into 2011 — some even said 2012.

HOWARD ARCHER, IHS Global Insight: The odds still heavily favour
the ECB keeping interest rates at 1.00% through 2010 and deep into 2011.
Despite some recent improved Eurozone economic data and surveys, the ECB
is very aware that still limited recovery in the Eurozone will be
buffeted over the coming months by tighter fiscal policy increasingly
kicking in across the region and likely slower global growth.
Furthermore, sovereign debt problems in the Eurozone could well flare up
again. Meanwhile, there seems good reason to expect underlying
inflationary pressures to remain muted in the Eurozone given overall
gradual recovery, significant excess capacity and muted wage growth.

TORGE MIDDENDORF, West LB: I think in general [the press conference
was] not much of a surprise. I think what was really new was the more
upbeat assessment of the economies in the Eurozone, the upswing in the
Eurozone. Trichet was in general more upbeat on economic development,
but I think this did not give a hint at what future monetary policy
would be like. I think well into 2011 interest rates will stay at the
current level. Our view is still that the ECB will hike rates for the
first time in 2012, so an interest rate hike is still a long way off.

DAVID PAGE, Investec: There is a slightly firmer trend in the
Eurozone recovery but they are not taking that for granted. Looking
further ahead the medium guidance is still for moderate recovery.
Trichet skirted around issues of a rise in EONIA, shying away from
welcoming that, though he did describe it as a normalizing process, and
we wouldnt be surprised to see the ECB take steps trying to address any
further rises over the rest of this year by extending the three month
full allotment facility next month for the fourth quarter.

TOM VOSA, National Australia Bank, Ltd: This months press
conference was significantly more relaxed than July, with Trichet
benefiting from the apparent success of the banking stress tests as well
as his imminent holiday to St Malo. Overall, he was in much better
humour than recently, thanking journalists for not asking any questions
on Greece at the end of the press conference…The ECB remains concerned
that although available data for the third quarter are better than
expected, growth in the second half of the year will not match growth
rates seen in Q2. The eurozone is still expected to grow at a moderate
and still uneven pace, in an environment of uncertainty. As with the
UK, it seems that the ECB is getting little comfort from Q2 strength and
continues to argue that any strength will be temporary with domestic
demand weakening in the second half of the year.

JAMES SHUGG, Westpac: On August 5, the European Central Bank left
rates on hold and ECB chief Trichet seemed more relaxed. There were no
hard questions from the journos armed with fresh horrific economic or
budget data, no backflips on policy commitments to explain, no fresh
crisis to gapple with. Trichet himself expressed delight that no-one
asked anything about Greece! Well, enjoy the respite M Trichet: this
sweet spot may not last for long.

CHRISTOPH BALZ, Commerzbank: There was little news this time. Maybe
the two things that were a little bit new were, first, that Trichet
upgraded a little bit the assessment of the current economic situation:
he talked about strengthening of the economy in 2Q and available data
for 3Q being better than expected. However, he partially ascribed this
to positive temporary factors and he didn’t really change the
medium-term outlook. He still thinks that the economy will grow at no
more than a moderate, uneven pace. The current assessment of the
economy, which is a little bit more positive now, should have little
impact on monetary policy decisions.

JEAN-CHRISTOPHE CAFFET, Natixis: The only real new information was
Trichet’s outlook for 3Q, which could open the door to a slight upward
revision in Eurozone growth forecasts for 2010 and, due to carry-over
effects, for 2012. We had suspected he would be very ‘happy’ to be
buying fewer public bonds. Also, his view that fears of a credit crunch
that resurged with the latest bank lending survey are exaggerated, that
the survey should not be overinterpreted, since the situation today has
changed since the survey was conducted in June…GDP growth and
inflation prospects do not suggest any rate hike at the forecast
horizon. We thus maintain our scenario of a first rate hike at the very
end of 2011, at the earliest.

JULIAN CALLOW, Barclays: Overall, while the debate in the markets
towards the US appears to have shifted somewhat towards consideration of
whether the Fed may engage in some further monetary easing measures, in
contrast the ECB is interpreting recent developments rather more
positively. There are some ‘shades of 2008′ here (ie, the Fed eased in
the first half yet the ECB tightened in July, 2008). In our view, the
ECB must be careful that such comments do not result in significant
further euro appreciation. This is because the euro area recovery has
been founded on the strength in exports to Asia along with re-stocking.
Therefore, in our view, in order to preserve the positive impulse of
exports (as the stock-building effect inevitably fades) there will need
to continue to be a significant net export contribution to support euro
area GDP and therefore some improvement in labour market conditions,
particularly considering that the pace of fiscal consolidation is set to
be reinforced in the quarters ahead.

JUSTIN KNIGHT, UBS: I found it interesting that he was underlining
that more ambitious fiscal targets might become necessary. Aside from
that I thought it was a pretty standard meeting and what you would
expect from an August ECB press conference.

JENNIFER MCKEOWN, Capital Economics: He seemed to be still being
pretty cautious actually. We thought, given that Europe is doing
certainly better than the US, that he might strike a considerably more
upbeat tone. Actually, although he said the second and third quarters
would probably be better than expected, he’s still talking about a
slowdown thereafter and he sounds pretty cautious about the global
outlook. We see rates on hold for the foreseeable future, we’ve
actually forecast no change until the end of 2012. It might not actually
be that long but I think the interest rate hikes are no way near as
close as the markets seem to expect.

RACKESH ODEDRA, 4-Cast: Generally there was nothing sunrising,
that’s the bottom line. Obviously he didn’t give much away. On the key
areas, basically on the money market situation, he’s very much talking
about normalisation in policy. In my view, this normalisation of the
Eonia rate is basically tightening. I think the ECB will encourage banks
to become less dependent on liquidity and may begin to drain some of the
excess liquidity. The bond purchase programme, nothing new there, just
basically saying core peripherals have come down.

GABRIEL STEIN, Lombard Street Research: Todays ECB press
conference was unusually interesting by the standards of recent months.
Moreover, it was interesting both for what was said and for what was not
said. Following a series of strong data over the summer, M. Trichet
could well have allowed himself some modest triumphalism. Instead, while
he duly noted that output growth in Q2 was very strong and that recent
data for Q3 have so far been better than expected, he also very
conspicuously avoided declaring victory. Instead, he repeatedly
stressed that output growth in the second half of 2010 is likely to be
at a moderate and still uneven pace, in an environment of uncertainty
and weaker than in Q2. This ties in with what was not said. In spite
of questions about the ECBs exit strategy, it was made abundantly clear
that for the moment the ECB does not intend to take any further
steps to end its non-standard measures.

ELGA BARTSCH, Morgan Stanley & Co.: During the Q&A, Trichet played
on the risk of a credit crunch, saying that the bank lending survey was
taken in a period of stress in funding markets. We continue to be
concerned about the possibility of a credit crunch. Trichet also
stressed the improvement in the functioning of money markets, which, in
his view, explains the lower liquidity demand and the higher money
market interest rates. In our view, the reduction in the maturity of the
money on offer also matters. He was quick to highlight that the rise in
money market rates should not be interpreted as a policy signal.

–Paris newsroom, +331-42-71-55-40; bwolfson@marketnews.com

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