Lagarde ECB speech: What to watch for Lagarde ECB speech: What to watch for Lagarde ECB speech: What to watch for

Lagarde ECB speech: What to watch for

Macro
Christopher Dembik

Head of Macroeconomic Research

Summary:  Our take on Lagarde's speech this morning in Frankfurt.


Context: The ECB is still dovish as revealed by the latest comments of members of the Governing Council. We have summarized some key recent headlines below.

  • Lane: doesn’t think that the ECB is at the limit yet.
  • Vasle says there is “still room” to ease policy.
  • Guindos: ECB won’t reach limits on QE program “shortly”.
  • Muller says more assets could join stimulus list in slump.

The ECB wants to give the impression that it can further support economic activity, if necessary. However, if it chooses to do so, it will probably have to think twice about diversifying the assets it repurchases. According to our estimates, the ECB already owns around 80% of Germany’s debt and roughly 70% of France’s OATs. If the ECB decides to extend and/or increase the size of the QE program in the future, it will need to make a trade-off between buying lowest-rated Eurozone government bonds and buying high grade corporate bonds. From our viewpoint, the ECB’s next major step will be to buy more corporate debt.

Interestingly, for the first time since the introduction of the accommodative monetary policy, the ECB has made a mea culpa regarding the impact of negative rates. In a report published two days ago, the ECB strongly emphasizes on the side-effects of negative policies, mentioning that it leads to “excessive risk-taking” and hurt bank profitability. One of the key upcoming debate within the Governing Council will be to evaluate at what level the disadvantages of negative rates tend to surpass the advantages.

On another note, the latest ECB minutes released yesterday were uninformative. The ECB has reiterated its strong call on governments to do more on public investment and fiscal stabilization wherever possible. We heard it before, but we expect the ECB will get louder and clearer on that point in coming months.

What to expect today:

Many ECB watchers hope Christine Lagarde will finally deliver a speech on monetary policy and will give the direction the ECB is heading. We believe they will be quickly disappointed. Given the flagrant dissension within the Governing Council, she could play safe and wait for the ECB press conference taking place on December 12 to really take a stand. On this occasion, the ECB will update its economic forecasts and will unveil its first projections for 2020.

We are all aware that Christine Lagarde does not have strong views on monetary policy yet. When she was appointed, we did our research and we only found two speeches over the past years covering monetary policy issues. In 2013, invited as a speaker by the Fed of Kansas City, she endorsed unconventional tools, including the OMT program. In 2016, she supported the introduction of NIRP.

In the short and medium term, she is very unlikely to revolutionize central banking, and she is most likely to increase pressure on Eurozone governments to use fiscal policy.

Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000
Australia

Contact Saxo

Select region

Australia
Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.