Please find below what we expect:
- We expect the ECB to keep its interest rates at record lows.
- We expect no significant change in the Pandemic Emergency Purchase Programme (PEPP) and no indication that the program will be wound down before March 2022. In terms of wording, we think that the ECB could commit to “higher” PEPP purchases in Q3 while stressing flexibility during the summer months. Previous wording was « significantly higher », which translates into a modest slowdown in Q3 vs Q2.
- We expect communication on the potential end to the PEPP to be postponed to September.
- We expect the inflation and growth outlook to materially change, reflecting the reopening of economies, the vaccination roll-out and higher commodity prices:
- On the inflation front, the ECB previously estimated that inflation would peak in the last quarter of 2021 at 2%; we expect this figure to be revised higher, to around 2.8%. We expect Ms. Lagarde to insist that inflation pressures will prove to be temporary.
- Changes could be less pronounced on the growth side. We expect the ECB to wait for more evidence that growth is really accelerating before revising its 4% 2021 growth target higher. Nonetheless, we expect the ECB to forecast 2021 growth at 4.2%.
- We also expect Ms. Lagarde to communicate about climate risk and how ignoring climate risk would be dangerous for central banks.
- Finally, Ms. Lagarde could repeat Ms. Schnabel’s communication regarding rising yields: “Rising yields are a consequence of investors becoming more optimistic and this is precisely what we want to see.“
We think that the ECB will postpone the difficult decision to September and keep all options open. Thursday’s meeting should be a non-event.
Disclaimer
This commentary is intended for non-professional investors within the meaning of MiFID II. It is provided for informational and educational purposes only and is not intended to serve as a forecast, research product or investment advice and should not be construed as such. It may not constitute investment advice or an offer, invitation or recommendation to invest in particular investments or to adopt any investment strategy. Past performance is not indicative of future performance. The opinions expressed by La Française Group are based on current market conditions and are subject to change without notice. These opinions may differ from those of other investment professionals. Published by La Française AM Finance Services, head office located at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, no. 18673 X, a subsidiary of La Française. La Française Asset Management was approved by the AMF under no. GP97076 on 1 July 1997.