Expectations are high for upcoming ECB meeting.
Following the massive volatility spike in financial markets over the last two weeks and the major tightening in financial conditions, expectations are very high for the Thursday ECB meeting. The negative impact of coronavirus on GDP growth is still very difficult to estimate, but European growth could turn negative this year. In that context, this ECB meeting is very significant for financial stability in Europe going forward. Here is what we expect:
- We expect the ECB to cut deposit rates from -0.50% to -0.60%, but in the current situation this is not the most important change; we would not be overly surprised if the ECB were to keep rates unchanged.
- We expect an increase in asset purchases, most likely at a monthly pace of 40-50bn € for at least 6 months, with a strong wording highlighting the possibility to go further if needed.
- We expect those asset purchases to be skewed towards corporate bonds.
- We expect TLTRO conditions to be improved relative to existing terms with targeted measures for small and medium enterprises (SMEs). The tiering multiplier could also be increased.
All in all, we think that market reaction could be positive for credit and peripheral spreads BUT this could be very short-term. Given the current level of uncertainty and the development of the coronavirus crisis in different countries (France, Spain, Germany, the United States..), the impact of the ECB could prove to be short lived.
Disclaimer
This commentary is intended for professional investors only 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.