ECB to kick off another easing cycle – TDS

Analysts at TD Securities believe the ECB will kick off another easing cycle at this week's meeting, in words for now but setting up for deeds in September.

• “The ECB has been edging in that direction through 2019, extending its forward guidance in March and again in June. We think that it will have to throw in the towel on calendar-based guidance altogether at this meeting, as focus turns to rate cuts rather than rate hikes.
• At the June meeting, we know that the ECB discussed its options to ease further, given the growing downside risks to growth. And later in the month at the Sintra conference, Draghi said quite clearly that, "In the absence of improvement, such that the sustained return of inflation to our aim is threatened, additional stimulus will be required.
• With no obvious improvement in the macro outlook, we know that further stimulus is coming, it's just a question of what kind and how much. We think that the ECB will spend the summer considering that question, and wait until September and more up-to-date macro forecasts before making any firm decisions.
• So the July meeting may not see that much market reaction in the end if things play out as we expect, but the potential for surprise is much higher than before as the ECB cracks open the toolkit that it thought it had closed when it finished QE at the end of 2018.”