global daily insight 10 march
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Insights.abnamro.nl/en
Daily Insight
10 March 2016
The ECB’s next move
All eyes on the ECB
The ECB is almost certain to act, but there is uncertainty about exactly what it will do. We
think the central bank will announce a broad package of measures including a 20bp cut in the
deposit rate to -0.5%. It will probably also announce measures to support the banking system,
such as introducing a tiered deposit rate system and a new long-term loan facility for banks.
Moreover, we expect the ECB to increase its monthly asset purchases by EUR 10bn and
extend the duration of asset purchases to June 2017. This should be facilitated by removing
the deposit rate floor for purchases. Such a package would be in line with the ECB’s past
policy actions. Over the last year or two, the ECB has generally introduced policies on a
number of fronts in an attempt to magnify the impact on financial conditions and the economy,
as well as to create a ‘big statement’ on announcement in order to shape expectations. In
addition, the deterioration in the outlook for economic growth – and especially inflation - has
been large. For instance, the ECB’s 2016 inflation forecast will likely come down by around
one percentage point (taking it to zero) while the 2017 forecast may be reduced by 0.3 points
to 1.3%. That means a significant response will be needed.
ECB’s projections for inflation
%
Source: Thomson Reuters Datastream, ABN AMRO Group Economics
1.1
1.7
1.0
1.6
0.0
0.5
1.0
1.5
2.0
2016 2017
September 2015 December 2015 March 2016
Group Economics Macro & Financial Markets Research
Nick Kounis
Head Macro & Financial Markets
Research
Tel: +31 20 343 5616
Aline Schuiling
Senior Economist
Tel: +31 20 343 5606
The ECB will very likely deliver monetary stimulus in Thursday’s meeting
Our base case is a 20bp deposit rate cut coupled by steps to cushion the
impact on banks
We also expect an increase and extension of QE, which should be facilitated by
removing the deposit rate floor for purchases
2 Daily Insight – The ECB’s next move - 10 March 2016
Markets have priced in a more moderate cut in the deposit rate …
Interest rate futures look to be pricing in a 10bp reduction at next week’s meeting (around
12bp is factored in) and a total of 18bp of reductions by June. Expectations of QE are difficult
to decipher from market prices, but surveys of economists and strategists suggest that a EUR
10bn increase in the pace of monthly asset purchases to a total of EUR 70bn is seen as most
likely.
… but we think the ECB will act more aggressively than expected
There is a lot of uncertainty about exactly what the ECB will do, and the central bank did
disappoint in December. However, we think that this time it will deliver. We think it will cut the
deposit rate by more than expected, while we also think it will strongly signal it is willing to do
more if necessary. The more neutral members of the Governing Council will be ready this time
to swing behind ECB President Draghi and the other doves and support more aggressive
stimulus. This is because the business surveys have deteriorated significantly since the start
of this year, while core inflation fell back significantly in February (to 0.7%, down from 1.0% in
January). It is now almost back to the lows seen at the turn of last year (of 0.6%) and has
wiped out its previous gains.
We think that the weak inflation data adds to the already strong case for the ECB to
significantly step up its monetary stimulus and act more aggressively than currently expected.
Getting the euro back down is the only way to get core inflation up significantly over the
coming months. In addition, the ECB needs to provide a strong signal that it will do whatever it
takes in order to push up long-term inflation expectations.
3 Daily Insight – The ECB’s next move - 10 March 2016
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Day Date Time Country Key Economic Indicators and Events Period Latest outcome Consensus ABN AMRO
Monday 07/03/2016 08:00:00 DE Manufacturing orders - % mom Jan -0.1 -0.2 0.0Monday 07/03/2016 09:00:00 CH Foreign currency reserves - CHF mln Feb 571.1bMonday 07/03/2016 21:00:00 US Fed Reserve consumer credit - USD bn Jan 10.5 15.3
Tuesday 08/03/2016 00:50:00 JP GDP - % qoq 4Q F -0.3 -0.4Tuesday 08/03/2016 08:00:00 DE Industrial production - % mom Jan 3.3 1.4Tuesday 08/03/2016 11:00:00 EC GDP - % qoq 4Q P 0.3 0.3 0.3Tuesday 08/03/2016 12:00:00 US NFIB small business optimismem - index Feb 92.9 94.2 94.0Tuesday 08/03/2016 CN Exports - % yoy Feb -25.4 -14.5Tuesday 08/03/2016 CN Imports - % yoy Feb -13.8 -10.1
Wednesday 09/03/2016 16:00:00 CA Policy rate - % Mar 9 0.5 0.5 0.5Wednesday 09/03/2016 NZ Policy rate - % Mar 10 2.3 2.5 2.5
Thursday 10/03/2016 02:30:00 CN CPI - % yoy Feb 1.8 1.9Thursday 10/03/2016 02:30:00 CN PPI - % yoy Feb -5.3 -4.9Thursday 10/03/2016 06:30:00 NL CPI - % yoy Feb 0.6 0.6Thursday 10/03/2016 13:45:00 EC ECB Deposit rate - % Mar 10 -0.3 -0.4 -0.5Thursday 10/03/2016 13:45:00 EC ECB Refi Rate - % Mar 10 0.05 0.05 0.05Thursday 10/03/2017 14:30:00 EC ECB Press ConferenceThursday 10/03/2016 14:30:00 US Initial jobless claims 278.0 275.0Thursday 10/03/2016 15/03/2016 CN M2 money growth - % yoy Feb 14.0 13.7Thursday 10/03/2016 15/03/2016 CN New loans - CNY bn Feb 2510 1200Thursday 10/03/2016 15/03/2016 CN Aggregate financing - CNY bn Feb 3417 1780Thursday 10/03/2016 KR Policy rate - % Mar 10 1.5 1.5 1.5
Friday 11/03/2016 08:00:00 DE CPI - % yoy Feb F 0.0Friday 11/03/2016 10:30:00 GB Trade balance - GDP mln Jan -2709Friday 11/03/2016 PL Reference rate - % Mar 11 1.5 1.5
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected key variables and events)