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ECB will say goodbye...

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The European Central Bank is fully expected on Thursday to affirm its plan to end its bond-buying program at year-end. But investors expect less clarity when it comes to signaling when Mario Draghi and fellow policy makers will move to nudge up ultra-low interest rates.

“We expect no new guidance on a first rate hike,” said Piet P.H. Christiansen, senior ECB/euro area analyst at Danske Bank, in a note.

The ECB’s policy statement is expected to retain its commitment to keep rates at present levels at least through the summer of 2019. The ECB’s key lending rate, known as the refi rate, stands at 0%, while the rate on deposits held overnight at the central bank is at negative 0.4%.

The policy statement is due at 1:45 p.m. Central European Time, or 7:45 a.m. Eastern, with Draghi’s news conference at the ECB’s Frankfurt headquarters set for 2:30 p.m. CET, or 8:30 a.m. ET.

By giving little hint, Draghi, the ECB president, will stick to a program of “dovish tightening” that’s seen the ECB prepare to unwind the extraordinary measures it implemented in the wake of the global financial crisis while attempting to avoid unduly tightening financial conditions, said Christiansen.

The caution stems from an economy that hasn’t fully recovered from a bout of third-quarter weakness but isn’t in dire enough straits to warrant a downgrade of the ECB’s assessment of the risks to the economic outlook, said Elwin de Groot, head of macro strategy at Rabobank, in a note.

Europe’s sluggish economy and political turmoil have been blamed for keeping pressure on European assets. The euro EURUSD, +0.5389%  is up 0.4% in October but off 5.3% versus the dollar in the year to date. The pan-European Stoxx 600 SXXP, +1.69%  has dropped more than 2% in October and is nursing a year-to-date decline of more than 10%, underperforming the S&P SPX, +1.03%which is down around 0.2%.

Analysts look for the ECB to maintain that the risks to the outlook remain “broadly balanced,” rather than skewed to the downside. Meanwhile, volatility in global financial markets, while hard for policy makers to overlook, is probably unlikely to change the ECB’s plans, de Groot said.

That all contributes to expectations Draghi, in his news conference, will try to be dull as possible, analysts said, while maintaining flexibility should the outlook deteriorate in 2019.

Investors will also focus on the ECB’s plans on reinvesting proceeds of its balance sheet, which it planned to continue doing for “an extended period of time” beyond the end of its asset-buying program.

Investors will look for any clarity on what it means by an “extended period,” said analysts at Barclays, potentially by specifying it will continue to reinvest proceeds for “two to three years and in any case as long as needed.” Anything less than two years would be viewed as hawkish by the markets, they said.

Economists overall seemed skeptical the ECB would move to extend the maturity of its bond purchases or make any big changes to how it allocates reinvestments among individual countries or types of assets.

Source: marketwatch.com

The European Central Bank is fully expected on Thursday to affirm its plan to end its bond-buying program at year-end. But investors expect less clarity when it comes to signaling when Mario Draghi and fellow policy makers will move to nudge up ultra-low interest rates.

“We expect no new guidance on a first rate hike,” said Piet P.H. Christiansen, senior ECB/euro area analyst at Danske Bank, in a note.

The ECB’s policy statement is expected to retain its commitment to keep rates at present levels at least through the summer of 2019. The ECB’s key lending rate, known as the refi rate, stands at 0%, while the rate on deposits held overnight at the central bank is at negative 0.4%.

The policy statement is due at 1:45 p.m. Central European Time, or 7:45 a.m. Eastern, with Draghi’s news conference at the ECB’s Frankfurt headquarters set for 2:30 p.m. CET, or 8:30 a.m. ET.

By giving little hint, Draghi, the ECB president, will stick to a program of “dovish tightening” that’s seen the ECB prepare to unwind the extraordinary measures it implemented in the wake of the global financial crisis while attempting to avoid unduly tightening financial conditions, said Christiansen.

The caution stems from an economy that hasn’t fully recovered from a bout of third-quarter weakness but isn’t in dire enough straits to warrant a downgrade of the ECB’s assessment of the risks to the economic outlook, said Elwin de Groot, head of macro strategy at Rabobank, in a note.

Europe’s sluggish economy and political turmoil have been blamed for keeping pressure on European assets. The euro EURUSD, +0.5389%  is up 0.4% in October but off 5.3% versus the dollar in the year to date. The pan-European Stoxx 600 SXXP, +1.69%  has dropped more than 2% in October and is nursing a year-to-date decline of more than 10%, underperforming the S&P SPX, +1.03%which is down around 0.2%.

Analysts look for the ECB to maintain that the risks to the outlook remain “broadly balanced,” rather than skewed to the downside. Meanwhile, volatility in global financial markets, while hard for policy makers to overlook, is probably unlikely to change the ECB’s plans, de Groot said.

That all contributes to expectations Draghi, in his news conference, will try to be dull as possible, analysts said, while maintaining flexibility should the outlook deteriorate in 2019.

Investors will also focus on the ECB’s plans on reinvesting proceeds of its balance sheet, which it planned to continue doing for “an extended period of time” beyond the end of its asset-buying program.

Investors will look for any clarity on what it means by an “extended period,” said analysts at Barclays, potentially by specifying it will continue to reinvest proceeds for “two to three years and in any case as long as needed.” Anything less than two years would be viewed as hawkish by the markets, they said.

Economists overall seemed skeptical the ECB would move to extend the maturity of its bond purchases or make any big changes to how it allocates reinvestments among individual countries or types of assets.

Source: marketwatch.com

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