By Caroline Grady 27-10-2020

ECB Preview: No New Policy Announcements Despite COVID Surge

(2 min read)
Resize text:


A renewed surge in COVID cases across Europe threatens to derail the Euro area recovery. Spain and Italy are the latest countries to impose new restrictions, putting more pressure on already-fragile service sectors. Thursday’s ECB meeting will acknowledge the rising downside risks, but any new policy action is unlikely.

ECB President Christine Lagarde described the recovery as ‘uneven, uncertain and incomplete’ in a 19 October interview with Le Monde. An assumption on further ‘localised containment measures’ was incorporated into the September forecasts, but the scale of recent measures very likely exceeds the baseline assumptions. But with no new forecasts due until December and holdings under the Pandemic Emergency Purchase Programme (PEPP) at just €600bn (out of the current €1.35trn envelope), we expect the ECB to announce no new stimulus this week.

Instead, we expect Lagarde will reiterate that the dual objective of the PEPP – to stabilize markets and bring inflation back towards target – are being met. Yields are now back at pre-pandemic levels, and the ECB views the recent bout of deflation the result of temporary factors such as the German VAT cut, weak demand and the earlier fall in oil prices. The ECB did not sound overly concerned about inflation dynamics in September (core CPI projections were raised slightly), and ECB forecasts already expect headline CPI to remain negative until early next year.

TO READ THIS HIVE EXCLUSIVE
SUBSCRIBE TO MACRO HIVE PRIME

£39/month thereafter

For access to our Slack Chat Room, where we discuss all things markets with our researchers and subscribers

START YOUR FREE TRIAL


MOST READ

Successful Start-Ups Build Strong Founding Teams (4 min read)

By Sam van de Schootbrugge | Feb 10, 2021
Start-up success hinges on many factors, but most would agree that the skills and experience of the founder and initial founding...

Where Will the Economy Find 10 million Lost Jobs? (3 min read)

By John Tierney | Feb 08, 2021
The headline January labour market report was another downer – private payrolls rose a scant 6,000 versus the consensus...

Where Can you Get Higher Bond Yields?

By Caroline Grady | Dec 04, 2020
US yields are rising. The combination of growing optimism over a global recovery given vaccine progress, and the possibility of a US...

PREMIUM CONTENT

The Fed is Failing (1 min read)

By Bilal Hafeez | Mar 01, 2021
The Fed’s failure is neither that rates…

Do ESG Ratings Affect IPO Valuations? (4 min read)

By Sam van de Schootbrugge | Mar 03, 2021
Summary A new Journal of Corporate Finance…

Want To Join Our Community Of Leading Investors And Researchers In Our Slack Chat Room?