- Weaker data are set to trigger a downward adjustment in the ECB’s macro outlook at the Dec 13 meeting. Yet comments from ECB officials suggest that the growth narrative is still viewed as fundamentally intact. At the press conference a dovish tone is set to prevail emphasizing the contingency of the policy path.
- We see the ECB ending QE in December and leaving rates constant at least throughout summer 2019. However, given the latest data and higher risks, we now look for a first deposit rate hike only in December 2019.
- We look for the announcement of an APP reinvestment period of three years to keep the term premium down but a tilt towards longer dated bonds (“operation twist”) will be hard to engineer. When outlining the details of its reinvestment policy, the ECB may hint at some flexibility in shifting from government to corporate bonds.
- We do not expect a new TLTRO announcement as it would water down the normalization. But the ECB will not close the door; the mid-2019 cliff effect will need to be addressed if financial conditions or the economy deteriorate further.