270219 ECB M

ECB Forum : A clear roadmap for the December meeting

Macro
Picture of Christopher Dembik
Christopher Dembik

Head of Macroeconomic Research

Summary:  While the era of monetary dominance is likely come to an end, central banks all around the world are still coming up with new creative ways to try to improve monetary policy transmission and mitigate the side-effects of the current second pandemic wave. Recently, the Bank of Japan announced a special deposit facility to trigger a M&A wave in the banking sector while the RBNZ unveiled a new Funding for Lending programme to reduce banks' funding costs and reduce interest rates. Yesterday it was the turn of the ECB to send a strong and committing signal to the market in favor of new measures to cope with the virus and its economic consequences. Central bank innovation continues to avoid a lost decade.


Yesterday, at the Sintra virtual ECB Forum, Christine Lagarde delivered a powerful and committing introductory speech (see here the full transcript):

“The ECB was there for the first wave and we will be there for the second wave. We are, and we continue to be, totally committed to supporting the people of Europe” (November 11th).

The forum continues for a second day, with a special focus on falling natural rates, fiscal policy and financial instability. Lagarde, Powell and Bailey will participate as speakers to the panels this afternoon. You can follow the live session here.

Lagarde’s comments echoes the opinion of Vice Fed Chair Clarida :

“I can assure you that we are committed to using our full range of tools to support the economy and to help ensure that the recovery from this difficult period will be as robust and rapid as possible” (October 14th here the full transcript).

In further details, Lagarde provided important insights to market participants ahead of the December meeting. Here are the main takeaways:

  • Lagarde explicitly dismissed rumors that the ECB is looking to pressure euro area member countries to take loans from the European recovery plan.
  • The PEPP (Pandemic Emergency Purchase Programme) and TLTRO (Targeted Longer-Term Refinancing Operations) are likely to remain the main tools for adjusting the ECB’s monetary policy, thus indicating that a further rate cut is not on the table at the moment.
  • The ECB is expected to further support the banks, which means more favorable TLTRO.
  • Lagarde insisted mostly on duration of QE, rather than on the level of support necessary to keep financial conditions accommodative, which points out to an extension of the current main asset purchases programme in the near term. It also means that the ECB is not inclined to buy the remain amount on the envelope of €1850bn by December this year.

 

In conclusion, we expect the following measures from the ECB next month:

 

  • The PEPP programme will be extended until at least the end of 2021 but without any intensification of the purchases.
  • We also expect better TLTRO III terms or a new TLTRO IV with longer maturity and lower rate, i.e. a 3-year period at minus 1%.
  • An adjustment of the Asset Purchase Programme, which has been mentioned by other strategists, does not seem to be a credible option in the short term. If needed, the ECB can always boost the APP in 2021 depending on the path and the speed of the recovery in the euro area.

 

There are still some work to be done by the Committees but we have already a very clear and strong signal from Sintra indicating that all the options are on the table and that further support will be provided at the December meeting. Combined with positive vaccine news that are likely to pop up in the coming weeks (we are waiting for Moderna’s update on its vaccine), the continued central bank support will keep fueling expectations and positive mood in the market at least until year-end. Investors have already priced in bad economic data related to the re-imposition of lockdowns and we don’t see much risks ahead, with the exception of the risk of shutdown in December in the United States that might have a limited market impact if it materializes. No need to say that Brexit is not on your list, we still believe that in the next two weeks a bare bones free trade agreement will be reached between the United Kingdom and the European Union. Therefore, the market rotation into cyclical, value stocks and especially emerging market assets that has occurred since early November, with strong performance from Asian indexes and currencies, is only starting and more gains are coming.

Quarterly Outlook

01 /

  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

None of the information provided on this website constitutes an offer, solicitation, or endorsement to buy or sell any financial instrument, nor is it financial, investment, or trading advice. Saxo Capital Markets UK Ltd. (Saxo) and the Saxo Bank Group provides execution-only services, with all trades and investments based on self-directed decisions. Analysis, research, and educational content is for informational purposes only and should not be considered advice nor a recommendation. Access and use of this website is subject to: (i) the Terms of Use; (ii) the full Disclaimer; (iii) the Risk Warning; and (iv) any other notice or terms applying to Saxo’s news and research.

Saxo’s content may reflect the personal views of the author, which are subject to change without notice. Mentions of specific financial products are for illustrative purposes only and may serve to clarify financial literacy topics. Content classified as investment research is marketing material and does not meet legal requirements for independent research.

Before making any investment decisions, you should assess your own financial situation, needs, and objectives, and consider seeking independent professional advice. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

Please refer to our full disclaimer for more details.

Saxo
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992