Daily Insight
Group Economics Macro & Financial Markets Research Nick Kounis & Kim Liu
ECB to step up to EUR 80bn
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8 September 2015 • • •
We expect the ECB to step up asset purchases to EUR 80bn p/m before year end German Bund yields and the EUR/USD are expected to head lower in the near term Meanwhile, ECB data showed slowing purchases in August due to the Summer lull
Adding details to our QE plus call Last week, we changed our ECB monetary policy call, to
Monthly purchases slowed down in August
include additional QE. We now set out the details of our new
In EUR bn
scenario and what it will means for the bond yield and currency
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outlook.
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Monthly purchase size to be upped to EUR 80bn
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monthly pace of asset purchases. We think that a EUR 20bn
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It would be big enough to have an impact, while allowing the
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0 Mar-15 Apr-15 May-15 Jun-15
central bank to keep some of its powder dry. No major change in eligible universe right away
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We think the ECB will most likely step up QE by increasing its monthly increase, taking the total to EUR 80bn is reasonable.
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Jul-15 Aug-15
Monthly APP purchases
Source: ECB, ABN AMRO Group Economics
We do not think the ECB will need to increase the eligible universe of assets to facilitate this increase at this stage. Given the increase in the issuer limit at the last meeting (from 25% to 33% on a case-by-case basis) we think the ECB should have greater scope to increase its sovereign bond purchases. In addition, it can also delve into utility bonds, if necessary. Indeed, this is an option it already took up with a few names earlier this year.
ECB's QE purchases eased in August, but still on track Meanwhile, data released by the ECB showed that it bought EUR 51.6 bn of securities under its overall QE programme in August, after EUR 61bn in July. The decline in the pace was expected as the ECB said that it would take lower liquidity into account on the back of the summer recess. Nevertheless, the purchases are exactly on track at an average 60bn per month
Before year end, most likely in October We think the announcement of more QE will come before year end, most likely in October. The ECB has said it wants to
since the programme started in March. This could also indicate that the ECB does not have to back load in September in order to compensate for the lower purchases during the summer.
assess the impact of recent developments in markets and China – that should not take too long.
Summer break is over When looking at the different programmes, the summer
Government bond yields and EUR/USD seen lower We have lowered our 10y Bund yield forecasts. We now expect yields to drop to 0.5% by year end (previously 0.7%). US 10y Treasury yields are also seen lower but could still edge up to 2.3% on a December Fed hike (previously: 2.4%). This means the US-Germany spread is set to widen considerably over the coming months on monetary policy divergence. As such, we hold on to our view that the EUR/USD will decline to around parity by the end of this year.
slowdown has been broad-based. Purchases for both the public sector (PSPP) and covered bond programmes dropped by around 17% in August. However, last week's purchases are indicating that the summer break has ended for the ECB. Purchases undertaken in the last week are on the rise, compared to the week before. The increase was most significant for purchases under the PSPP programme. Last week's PSPP purchases accounted for EUR 11.9bn, which is in line with weekly purchases before the summer.