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PIG TODAY-Trading The ECB: Views From 15 Major Banks

Goldman: No Change, Little Action From The Meeting.

The ECB's Governing Council will meet on Thursday, January 19. In line with the broad market consensus, we expect little action at the meeting, based on the lack of market news since December. Specifically, we expect key policy rates to be left unchanged, and no changes to the Asset Purchase Programme (APP). We expect the introductory statement to continue to describe risks to the growth outlook as skewed to the downside, and that Mr. Draghi will resist any suggestion that recent inflation data warrant the withdrawal of monetary accommodation.

Morgan Stanley: Staying Short EUR/USD Into ECB.

We used the recent rally in EURUSD to add a short position to our portfolio. Our arguments for a weaker EUR have not changed. In the absence of further political integration, the ECB may have to remain accommodative to support the struggling periphery even as the core overheats. As EMU inflation shows signs of rising, real yields may decline to weaken the EUR. The risk of rising populism with the upcoming elections in the Netherlands, France and Germany will also be an undertone for the currency. We'll pay particular attention to the ECB's rhetoric on the recent upside surprise in inflation.

Nomura: No Change, ECB To Remain Guarded.

In line with an overwhelming consensus, we do not expect any changes to the ECB’s monetary policy programme at tomorrow’s meeting. Instead, we expect the focus to be on the Governing Council’s assessment of macro-economic developments in light of some positive dataflow over the past few weeks. Thanks in part to that dataflow, we now believe the risks to the ECB’s (and consensus) forecasts for the growth and inflation outlook have shifted to the upside. During the post-meeting press conference, President Draghi will nevertheless probably re-emphasise the ECB’s strong commitment to the existing monetary policy programme by stressing some of the numerous downside risks that could generate further instability for the region in the months ahead. In terms of trades: we enter 10yr OLO vs short 10yr RFGB at 20bp targeting 10bp (stop 25bp), but also a tactical long 15yr BTP Mar-32 vs 10yr and 20yr at 10.5bp with a target at 0bp stop at 15b.

Credit Agricole: No ECB Surprises; Further Upside Into 1.09 A Selling Opportunity.

This week’s main focus will be on this year’s first ECB monetary policy announcement. In line with consensus expectations we see limited scope for ECB surprises. If anything, central bank President Draghi should defend a more dovish stance in light of still muted core price developments. As such he is likely to downplay the higher than expected headline inflation, as confirmed by December CPI data. Such a stance is fully in line with what he stressed previously. As long as higher inflation is largely driven by base effects, upside risks to inflation are likely regarded as muted. In an environment of stable investors’ central bank rate expectations it will be about external factors such as risk sentiment to drive the currency. With risk sentiment more unstable, some further EUR/USD upside risk cannot be excluded in the short-term. However, from a broader angle we believe rallies into 1.09 should prove corrective and should still be sold.

SocGen: An Uneventful Meeting; Long USD & Walk Away. 

We get a likely uneventful ECB meeting on Thursday, but it is still likely to be a combination of renewed widening in yield differentials and a ramping-up of nervousness ahead of the French elections which will be the catalyst for renewed Euro weakness when that happens.The choppiness of the most heavily traded pairs, like EUR/USD, USD/JPY and GBP/USD, not to mention the recent moves in equities and bonds, is making life difficult for anyone who doesn't just put positions in place and walk away. Those who do just walk away are probably the ones still long dollars, short Treasuries and waiting for President Trump to begin his first hundred days in office.

RBC: ECB A Low-Key Affair.

The ECB Governing Council’s first meeting of 2017 should be a low-key affair. The December decision to extend QE by nine months, dropping the monthly pace to EUR60bn should largely set the ECB’s policy course for this year. Although headline euro area inflation has recently increased and is forecast to continue doing so in coming months, we fully expect the ECB to choose to ‘look through’ the rise, which is being determined primarily by energy price developments. So we expect little change, with President Draghi again likely to emphasise downside risks to the outlook and the lack of upward trend in underlying inflation, which will allow him to ignore the early calls from some quarters for the ECB to begin the process of normalising policy.

BNPP: ECB To Stick To The Plan; Staying Short EUR/USD Via Options. 

On Thursday, the ECB press conference may note further improvement in activity and reduced downside risks. However, our economists expect the ECB to remain very wary of fueling premature speculation about an end to QE. With the ECB emphasizing a preference for sticking with the plan and ongoing asset purchases capping nominal rates, stronger activity data in Europe is likely to keep real rates low, leaving the EUR vulnerable. We remain positioned for EURUSD downside via a EURUSD ratio put spread with KI (buy 1x 1.05, sell 2x 1.03 with 1.0150 KI) (14-Feb expiry)

SEB: ECB To Strike A Dovish Balance On Thurs; Market Neutral.

Having already mapped its monetary policy course for full 2017 at its last meeting in 2016 (8 Dec), the ECB is most unlikely to deliver any further policy adjustments at the upcoming, first Governing Council meeting in the new year on 19 January. Markets will therefore focus on the ECB press conference, in which Mario Draghi will deliver an update on economic and monetary developments in the euro area over the past six weeks. In order to avoid any diminution in the current amount of monetary accommodation, we expect the ECB to strike a dovish balance and dispel any taper speculation. Given the minimal bond and FX market moves since the previous ECB meetings, we expect the outcome of this week’s ECB meeting to be broadly market-neutral.'

BofA Merrill: Draghi To Be Dull; Sell EUR/USD On Any Bullish Reaction.

We think any hawkish statements that strengthen the EUR during the Q&A could be an opportunity to sell EUR/USD again ahead of potential fiscal stimulus in the US. EUR/USD has been a USD trade and weakened as the USD rallied after the US elections. The EUR has not weakened with respect to non-USD G10 currencies and has actually strengthened against the JPY. The EUR remains at its early 2004 level with respect to non-USD G10 currencies. Similarly, although the EUR/USD is down by 2.5% since the December ECB meeting, the EUR is down only by 0.4% with respect to non-USD G10 currencies. In real effective terms, the EUR is stronger than in early 2015. And EUR/USD has corrected higher so far this year, particularly in the last two weeks.

Barclays: No Change From ECB.

We expect no change in monetary policy stance at this week’s ECB meeting. The challenge for the ECB will be to manage market expectations as headline inflation increases in the coming 3-4 months, driven in part by energy prices and the currency. We expect the weakness in underlying inflation to persist in 2018, with core inflation improving but still below 1.5%. Therefore, we think that QE will be needed in 2018 but at a reduced pace of c.EUR35-40bn in H1 and EUR15-20bn in H2.

Danske: ECB To Stay Dovish Despite Better Data.

We do not expect a hawkish stance from the ECB, although the latest economic survey indicators have strengthened further and inflation has risen above 1.0% for the first time in three years. President Mario Draghi will most likely argue that the ECB does not react to a single inflation figure, that the latest inflation gains are due primarily to energy prices and consistent with the ECB’s inflation forecast – broadly in line with last week’s comments from the hawkish executive board member Yves Mersch. The higher inflation is good news for the ECB but it seems clear that the underlying price pressure is most important and here there are ‘no signs yet of a convincing upward trend’.

Deutsche Bank: A Patient ECB  For Now.

Our central case scenario is a patient ECB. They should be reassured by broadly unchanged financial conditions after their decision to slow the pace of QE.The ECB won’t feel challenged by the recent data..If current data trends continue, the outright taper decision could accelerate to June rather than September, but the latter is our baseline. The key is whether inflation, especially core, is becoming more likely to exceed ECB forecasts. Euro area headline inflation should rise sharply in January and February, to 1.6% and 1.8% yoy respectively. That said, mid-year is the earliest that the less convincing core inflation will satisfy the minimum conditions for policy tightening...However, the ECB won’t be afraid to change plans, if necessary. If a "sustainable adjustment" in inflation is reached, we don't think the ECB would hesitate to act, even changing the current plan.

UniCredit: Constructive, But Still Dovish.

We do not expect new policy announcements when the ECB meets on Thursday. Therefore, the monetary policy framework will remain the same as announced on 8 December: EUR 80bn of monthly asset purchases until March, with a slowdown to EUR 60bn per month in the remaining nine months of the year. The current forward guidance, which indicates a bias of the Governing Council (GC) for more, rather than less, asset purchases, is likely to remain in place. ..We think that ECB President Draghi will sound constructive, but dovish.

ANZ: ECB To Show Steady Hand. 

The tone of this week’s ECB meeting may be more even-handed given the improvement in euro area inflation and encouraging readings on activity.  Market chatter of an early end to QE seems premature, however, given that core inflation is still way below target and there is no evidence yet of a sustainable recovery in inflation. However, as growth and inflation improve, it is natural to expect the ECB may not have to announce additional policy measures.

UOB: ECB A Non-Event, EUR/USD In 1.0500-1.0715 Near-Term. 

The first ECB meeting for the year tonight is likely to be a non-event. Following the decision to extend its QE program up to Dec this year at its last meeting, we do not expect much from the ECB this round. The statement at the press conference could also remain roughly unchanged, although the tone of the press conference could reflect a stronger confidence inside the board regarding the economic outlook. In all, we expect 1.0500 to 1.0715 in the near term.

Source: efxnews.com

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