What are the expectations for the ECB meeting tomorrow?
The key thing to watch at tomorrow’s meeting will be what the ECB decides on its PEPP stimulus package, as it should run out in mid-September or October at its current rate. Here’s what some companies are planning (h / t @ Adam Linton):
An increase of 500 billion euros, without extension of duration, that is to say until the end of this year.
An increase of 500 billion euros, apart from the chances of an increase of 1 trillion euros.
An increase from 750 billion to 1,000 billion euros, but at the July meeting.
It’s difficult to make sense of stimulus these days, as it tends to weaken a currency, but at an unprecedented time, it offers a more favorable factor.
The initial reception by the market of the PEPP stimulus was positive, the main thing being that it allowed the closing of yield spreads on the bond market.
In this context, we can expect the ECB to take a more proactive approach and calm the market sooner than later, i.e. decide to act in June to communicate an expansion of its PEPP stimulus – in size and perhaps also in duration.
This should give investors a broader sense of relief and ease financial conditions a little more, allowing yield spreads not to at least explode again.
As such, this should be a somewhat favorable factor for the euro. But for the currency itself, much will also depend on the communication and the language of the President of the ECB Lagarde tomorrow, the central bank also having to publish its latest macroeconomic projections.