ECB preview y análisis situación semanal

Special focus

ECB meeting: time to deliver.

· Our approach to this week’s ECB meeting can be summarised as:

· Background: the macro outlook is still biased to the downside. The threats posed by the “usual suspects” (trade war, Brexit, etc.) to the global growth outlook continue to have a significant impact on market sentiment.

· Rates policy. We are expecting at least a 10bp cut in the depo rate in September; in fact, we now consider that the likelihood of a 20bp rate cut in the depo rate has increased significantly. The forward guidance from the ECB will also be very relevant. On the data-contingent front, we expect the ECB to leave the door open for eventual rate cuts in the next few months. As for the state-contingent leg, the ECB will maintain or even stretch out the timespan where it is taken for granted that the interest rate policy will not be reversed.

· Tiering. The mere confirmation of “just” a 10bp depo rate cut may not necessarily warrant the implementation of this sort of mitigating measure. However, should the depo rate cut be 20bp or more, it would lead the “pro” side of this measure to outweigh the “cons” and would very likely be accompanied by some sort of tiering.

· QE2. The likelihood of a QE2 being implemented has increased considerably over the last few months. Although such a bold move may not be warranted as soon as September, in our view it is just a question of time before this measure is finally implemented (most likely before the year-end). Our base case scenario envisages net asset purchases of c.EUR20bn per month, to be extended for 12-15 months and that would feature a roughly similar distribution between public sector assets and the rest as well as across geographies as the first APP. In the case of sovereign bonds, this would be consistent with c.EUR12-15bn of net purchases per month.

· Market positioning: the curves seem to completely indicate it is time to “buy”. This is a scenario where the ECB will be fairly aggressive in its interest rate policy, but immediate QE2 should not be taken for granted just yet. Whenever this eventual QE2 is included in the scenario, it would arguably give yields some additional room to the downside across the curves. Peripherals should benefit, and there could be room for further spread compression. A more detailed depict of our overall expectations about monetary developments as well as potential market implications can be found at “ECB Preview: time to deliver”.

Weekly macro update

- A downward skewed macro outlook remains in place generally speaking, particularly in Europe: 2Q19 confirmed a slowdown to 0.2% QoQ from 1Q19 (revised downward to 0.4% QoQ from 0.5% QoQ) and the component breakdown is particularly downbeat: investment and exports remain weak (with private consumption growth showing signs that it may start to flag). Regarding global factors, despite markets’ positive reaction to hints that US-China trade negotiations may restart in October, we still think that this is not even close to a game-changer.

- Although it is reasonable to expect that volatility may be higher in a context when most of (not to say almost all) the focus is on “speculation about when and what decisions will be taken by a few people”, we still think that that no game-changer is likely to arise anytime soon. Any uptick in yields should be seen as an opportunity to take long positions in bonds in general terms.

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