La Française AM: Commentary on upcoming ECB meeting

La Française AM: Commentary on upcoming ECB meeting

June 3, 2020

ECB
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By François Rimeu, Head of Multi Asset & Senior Strategist at La Française AM

The European Central Bank will hold its press conference on Thursday June 4th. Please find below what we expect:

  • We expect no change in the deposit rate.
  • We expect the size of the PEPP to increase from € 750bn to €1000-1250bn. This decision is the most important as markets may interpret it as a confirmation of the central bank’s independence. The size of the PEPP is important but communication will be decisive.
  • We expect to have some details about reinvestments coming from the PEPP. One could say that the PEPP is not a long-term instrument (contrary to typical QE) and that purchases should not be reinvested forever, but we do not think it is the ECB’s intention to send such a “hawkish” message considering current uncertainties.
  • We expect the ECB to include fallen angels in the PEPP; it is a close call.
  • We do not expect TLTRO terms to be changed; the tiering multiplier will remain as is.
  • We expect macro-economic projections to be revised downwards, as already indicated by Mrs. Lagarde last week.

Following speeches from Mr. Villeroy and Mrs. Lagarde, market expectations have dramatically risen over the last 10 days, so it might be a “buy the rumors, sell the facts” central bank event but positioning still appears to be on the low side so we would lean towards a moderately bullish response from markets.

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