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22 Dec 2015
‘End of easing’ from the ECB...but still QE in 2016 – Danske Bank
FXStreet (Delhi) – Research Team at Danske Bank, suggests that the ECB and Mario Draghi on 3 December disappointed the aggressive market expectations by delivering a much less aggressive ‘menu’ of monetary easing measures, which notably included a mere 10bp cut in the deposit rate to -0.30% and no expansion of the QE programme.
Key Quotes
“Notably, Draghi was also rather upbeat regarding the economic outlook and the ECB’s projections for activity were revised slightly higher. The less aggressive December move from the ECB indicates to us that the bar for more easing is quite high. Hence, we expect the December ECB easing marked the end of ECB easing.”
“However, ‘end of easing’ does not mean that we are in for significantly higher yields in 2016. The ECB is still keeping yields up to at least the five-year segment on a very tight leash. We believe the QE programme will continue at least until March 2017 and the Eurozone is still stuck with a record-low deposit rate of -0.30%. Hence, the upward move we expect for 10Y yields is due mainly to the spill over effect from higher USD yields in 2016. Therefore, we continue to expect a steeper curve 2Y10Y in EUR.”
Key Quotes
“Notably, Draghi was also rather upbeat regarding the economic outlook and the ECB’s projections for activity were revised slightly higher. The less aggressive December move from the ECB indicates to us that the bar for more easing is quite high. Hence, we expect the December ECB easing marked the end of ECB easing.”
“However, ‘end of easing’ does not mean that we are in for significantly higher yields in 2016. The ECB is still keeping yields up to at least the five-year segment on a very tight leash. We believe the QE programme will continue at least until March 2017 and the Eurozone is still stuck with a record-low deposit rate of -0.30%. Hence, the upward move we expect for 10Y yields is due mainly to the spill over effect from higher USD yields in 2016. Therefore, we continue to expect a steeper curve 2Y10Y in EUR.”