September ECB outlook: After fueling high expectations, it’s time for Draghi to deliver

September ECB outlook: After fueling high expectations, it’s time for Draghi to deliver

Macro
Christopher Dembik

Head of Macroeconomic Research

Summary:  After fueling high expectations, it’s time for Draghi to deliver.


  • Draghi has created high market expectations, it is now time for him to deliver. If he does not announce a big push, the ECB will need to do much more in December meeting, with little chance of success, and in a more uncertain macroeconomic environment.
  • The two main arguments in favor of ECB’s new measures are the risk of de-anchoring of inflation expectations and the risk of technical recession in Germany in Q2-Q3 this year. On the bright side, domestic demand remains broadly resilient in the eurozone, as pointed out by recent strong retails sales, and fueled by low inflation and rising wages. The outlook is positive for private consumption in most countries, except for Germany where we start to see a contagion of weakness from the manufacturing to the service sector.
  • The opposition of 6/7 hawkish members of the Governing Council is unlikely to prevent a relaunch of QE, but it could lead to a smaller package than initially anticipated. Market expectations were for QE2 to be set at EUR50bn per month, but the size could be revised lower between EUR20-30bn per month to reach a broad compromise. The ECB can also play with other QE parameters, such as the duration of the program and/or the removal of capital keys, which is more unlikely.
  • A rate cut of 20 bps could also be announced but the effect in boosting inflation is rather low. There has been a lot of debate about the introduction of a tiering system, but it is not yet certain it will be announced this week as “some concerns were raised regarding possible unintended consequences” according to the latest ECB minutes.
  • Risks to growth are growing in coming quarters as the EU could be the next target of Trump’s trade war. Based on real effective exchange rate, the EUR is 25% too weak versus the USD and, on the top of that, US trade deficit with the EU is increasing at fast pace and approaching the level of the US trade deficit with China. The combination of deteriorating US trade deficit with the EU and very accommodative ECB monetary policy is likely to trigger sharp response from the Trump administration in coming weeks or months.
  • Strategic view: If Draghi delivers, it could appease the market for one week or two weeks at best, betting on the fact that there is no further deterioration on the trade war front. The upcoming FOMC meeting will constitute the next test for euro/dollar sentiment. In the interim, we see further weakness in EUR/USD is likely due to the recent breakdown of 1.1000 and the expected further ECB stimulus.

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