ECB: The Market is Looking For Clues

The European Central Bank (ECB) is scheduled to announce its monetary policy decision this Thursday at 11:45 GMT, which will be followed by the post-meeting press conference at 12:30 GMT.

Today’s ECB announcement may have more significance and is closely followed by the markets as it is one week ahead of the Fed, as the Fed is expected to announce the long-awaited QE tapering. ECB is widely expected to remain unchanged for the time being and the main event will be the December meeting. Still, we may see some clues about ECB’s outlook and expectations for the fourth quarter of 2021 and follow Lagarde’s post-meeting press conference closely.

Inflation rose to 3.4% y/y due to continued upward pressure from energy prices and core inflation. However, due to pandemic distortions, a mean of inflation over the last 12 months provides a more solid picture of the underlying trend. At 1.4% y/y, this mean value is currently well below the current inflation after the negative inflation values ​​from the previous year’s fall are also included in this calculation.

“This Governing Council meeting is likely to be a staging ground ahead of wide-ranging policy decisions in December, and will therefore be about tone and expectations management. One thing to keep an eye on in particular will be what is said about the recent surge in natural gas prices, as well as if ECB President Lagarde challenges the market pricing on liftoff as inconsistent with their inflation forecasts and new rates guidance. 5yr5yr Euro inflation swaps hit 2% for the first time on Friday so if the market is to be believed the ECB has achieved long-term success in hitting its mandate. With regards to the meeting, we think there’ll be more action in December where our baseline is that there’ll be confirmation that PEPP purchases will end in March 2022.”

Deutsche Bank reported