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PEPP and TLTRO announcements widely expected by the market

08 December 2020

Difficult for the ECB to surprise on the dovish side

  • On the PEPP (pandemic emergency purchase programme), we expect the envelope to be increased by around €500bn and the timeframe to be extended from mid-2021 to year-end 2021. The reinvestment horizon could also be extended beyond the current end date of December 2022.
  • We do not expect any merging of the PEPP and the APP (Asset Purchase Programme). Furthermore, we do not expect the APP temporary envelope to be renewed.
  • We expect TLTRO (Targeted longer-term refinancing operations) with attractive terms: LT maturities (at least 3 years), low rates (-1%), tiering multiplier at 8-9x (vs 6x) and maybe some changes on borrowing allowances and lending benchmark.
    - On both the PEPP and the TLTRO, we expect the focus to be on duration more than on intensity of asset purchases.
  • The ECB will also update its macro-economic projections:
    - We could see growth upgrades in 2020 following meaningful upside surprises in Q3 but the outlook for early 2021 has weakened in light of the virus containment measures. 
    - We could see inflation downgrades following the rise in the Euro.
    - Bear in mind that we will also have the 2023 projections for the first time. We expect the inflation forecast by 2023 to be, again, below the objective (around 1.4% core inflation)
  • We expect comment about the strength of the Euro, but there is nothing the ECB can do. 
  • We expect the overall tone to be clearly dovish to maintain favourable financial conditions.

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.

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