Daily Insight
Group Economics Macro & Financial Markets Research
19 April 2016
ECB to focus on March measures
The ECB meets later this week, after having announced a package of measures in March
Nick Kounis Head Macro & Financial Markets
Research Tel: +31 20 343 5616 nick.kounis@nl.abnamro.com
Dowside risks to the growth and inflation outlook persist, but further easing is unlikely until later in the year
Indeed, two of the measures announced in March are yet to be implemented
Focus in April meeting will be on details of the corporate bond scheme, which
Hyung-Ja de Zeeuw Senior Credit Strategist
we think will reveal a relatively large eligible universe totalling EUR 750bn
Tel: +31 20 628 3551 hyung-ja.de.zeeuw@nl.abnamro.com
ECB likely to be on hold this week The ECB Governing Council meets later this week. With the ECB having just announced a package of measures last month, it is almost certain that the monetary policy stance will be left on hold. The focus in the press conference will be in how the ECB judges the outlook and on providing details on the corporate bond purchase programme it announced in March. More positive signs Developments over the last few weeks have generally been positive. Investor sentiment has improved and oil prices have bottomed out. In addition, the macro data flow has been a little more encouraging. There are signs from the early hard data that GDP growth may have been a little stronger in Q1, while business surveys on balance improved in March. Finally, inflation has moved out of negative territory on the back of higher core inflation. Risks are to the downside Nevertheless, risks are still tilted to the downside. In March, the ECB projected inflation to be only 1.6% yoy even at the very end of 2018. It relied on the package of measures it announced to close the gap with its goal. However, the impact on financial conditions has been mixed, partly because the euro has risen. In addition, significant risks to the outlook remain, from debt in emerging markets to political risks in the advanced economies. Meanwhile, recent eurozone activity and inflation outcomes may have been inflated by the early timing of Easter. Inflation in particular will likely fall back into negative territory again. Measures still to be implemented All this suggests that the ECB will probably need to do more. However, we do not think further monetary stimulus measures will come until the second half of the year (likely in September).
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Daily Insight – ECB to focus on March measures – 19 April 2016
Two of the main measures it announced (the TLTRO and the corporate sector purchase programme) will not even be implemented until June, so the ECB will need some time to get a sense of the impact these measures will have on financial conditions and hence on the growth and inflation outlook. We think that eventual further easing will take the form of a step up and extension of QE. Although we think further modest deposit rate cuts are possible, this step may only be taken if there is a significant uptrend in the euro. Details of CSPP to be announced The real news at the April ECB meeting will be in the details of the ECB’s Corporate Sector Purchase Programme (CSPP). We think that the ECB will probably go for the largest possible universe of euro investment grade assets from issuers established in the eurozone. We estimate that this unverse equates to around EUR 750bn, and would include traditional nonfinancial corporates as well as ‘financial corporations other than credit institutions’. In this category there are many funding entities of normal corporates, real estate corporates and insurers. In addition, we think the ECB will also include floating rate notes, bonds that mature within 1 year and bonds with an amount outstanding less than EUR 500mn. Given this universe and our estimates for issuance in the primary market, the ECB could have the scope for a total programme size of EUR 130bn or EUR 10bn per month (see our Euro Corporate Watch: ‘CSPP: how much will the ECB buy?’).
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Daily Insight – ECB to focus on March measures – 19 April 2016
Day
Date
Time
Country
Monday Monday Monday
18/04/2016 18/04/2016 18/04/2016
14:30:00 14:30:00
US US US
NAHB home builders' confidence index Apr Fed's Dudley (voter) gives opnening remarks at Economic Conference Fed's Kashkari (non-voter) speaks in Minneapolis
Tuesday Tuesday Tuesday Tuesday Tuesday
19/04/2016 19/04/2016 19/04/2016 19/04/2016 19/04/2016
10:00:00 11:00:00 14:30:00
US KR EC DE US
Fed's Rosengren (voter)speaks Policy rate - % ECB Bank Lending survey ZEW index (expectation economic growth) Housing starts - % mom
Wednesday Wednesday Wednesday Wednesday
20/04/2016 20/04/2016 20/04/2016 20/04/2016
06:30:00 10:30:00 13:00:00 16:00:00
NL GB TR US
Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday Thursday
21/04/2016 21/04/2016 21/04/2016 21/04/2016 21/04/2016 21/04/2016 21/04/2016 21/04/2016 21/04/2016
07:30:00 08:45:00 10:30:00 13:45:00 13:45:00 13:45:00 14:30:00 14:30:00 16:00:00
Friday Friday
22/04/2016 22/04/2016
10:00:00 10:00:00
01:00:00
Key Economic Indicators and Events
Period
Latest outcome
Consensus
ABN AMRO
58
59
59
Apr-19 Q1 Apr Mar
1.50
1.50
1.50
4.3 5.2
8.3 -0.9
9.0 0.0
Consumer confidence - index Change in claimant count - thousands Repo rate - % Existing home sales - % mom
Apr Mar Apr 20 Mar
-4 -18.0 7.5 -7.1
-11.5 7.5 3.4
NL FR GB EC EC EC US US EC
Unemployment rate - % Business confidence manuf. - index Retail sales - % mom Main Refinancing rate - % Deposit Facility rate - % Marginal Lending Facility rate - % Initial jobless claims - thousands Philadelphia Fed - business confidence - index Consumer confidence
Mar Apr Mar Apr 21 Apr 21 Apr 21 Apr 16 Apr Apr P
6.5 101 -0.4 0.00 -0.40 0.25 253 12.4 -9.7
EC EC
PMI manufacturing - index Composite PMI output
Apr P Apr P
51.6 53.1
-2
3.5 6.5
101 -0.2 0.00 -0.40 0.25
0.00 -0.40 0.25
7.6 -9.4
-9.3
51.8 53.2
51.9 53.2
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events)
Find out more about Group Economics at: https://insights.abnamro.nl/en/
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