The following are the expectations for today's October ECB meeting as provided by the economists at 15 major banks.
Goldman: We expect rates on hold (Main Refinancing Rate on hold at 0.05%, in line with consensus). The ECB will publish technical documents on how it intends to proceed on the ABC program. Our European Economics team (i) does not expect a total size for the ABS and covered bond programs to be announced, (ii) and thinks that, while covered bond purchases will likely start from October, ABS purchases could be delayed as further preparatory work still needs to be completed.
Morgan Stanley: The market will be looking for confirmation of the size and scope of the ECB’s asset purchase programme at today’s meeting. While the ECB is set to provide further technical details, the big question will be if the ECB commits to an overall size of programme or looks to maintain flexibility. Market expectations for the overall scope are elevated, in our view. Reported market consensus of asset purchases is set at the EUR500bn level. Our credit strategists believe this will be difficult to achieve via the asset groups already announced...However, Draghi may choose a more open-ended approach, not announcing an overall target but just the time period and the criteria for asset purchases; this could keep market expectations elevated and EUR under pressure.
RBS: Draghi should retain a dovish bias in his post-ECM meeting conference tonight. In his Jackson Hole speech in August he highlighted the fall in the 5 year forward 5 year inflation swap rate below the ECBs inflation target of 2% as a reason for further aggressive ECB policy action. The chart below illustrates that this ECB bogey remains well below 2%. Draghi may get pressured to say how committed he is to expanding the ECB balance sheet by as much as the one trillion euros he has forecast. If he is evasive there may be some short-covering in EUR. If he suggests he still has this target in mind it may be regarded as dovish especially if he suggests that he is prepared to take further steps to achieve it if the TLTROs and ABS/covered bond purchases appear to falling short (as our strategy team expects).
BNPP: The ECB is widely expected to leave policy unchanged at today’s meeting but the press conference should bring more details on the ABS purchase program announced in September. While President Draghi may still be unwilling to specify a target size for the program, analysts will attempt to refine their estimates based on any details on the range of the assets to be purchased...Bottom line for the EUR is that Dr. Draghi needs to convince investors that ECB action will be large enough to boost inflation expectations, and that policy responses will continue to escalate if inflation expectations were to fall further. If he fails and inflation expectations continue to retreat, real rates will move in the EUR’s favour once more and we could see some pressure on EUR short positions.
SocGen: The danger of today's ECB Council meeting is that there is nothing new for Mr Draghi to put on the table (yet) and little scope to ease given the concerns about the feasibility of plans to grow the balance sheet. Our economists expect combined ABS and covered bond purchases of under €150 bn, which won't set market alight. Does that mean a sell-off for risk assets? Does it trigger a short-covering rally for the euro? It may well do so, though a euro bounce born of failure to tackle Europe's deflationary Japanification would be short-lived.
BTMU: There are three ways the announcement could go. Firstly, President Draghi could announce a total ABS/Covered Bond QE program size, say of around EUR 500bn. Secondly, President Draghi could give himself a little more flexibility by giving the market a monthly total and provide a period of time for the program. Finally, President Draghi could decide to be very vague by only offering a starting amount and imply that this may change over the course of time with no fixed period. Given the degree of uncertainty over the ability of the ECB to buy certain assets and given the uncertainty over how much credit risk the ECB will take (EU government guarantees appear unlikely at this stage) the third scenario could be what we get. So a further modest correction higher for EUR/USD is possible today if the ECB announcement fails to convince the markets of a sizeable QE program being undertaken. However, assuming hints of broader QE is kept alive, the correction higher should be relatively modest. The lows from 2013 around 1.2750 may act as resistance to any move higher today.
Citi: The key for today will be the announced size of the ABS and Covered Bond purchase programs. The market expects it to be about EUR300bn in size, but Citi research thinks is should be more like 400-500bn. This number will be the first focus of the market and then it will move on to parsing Draghi's rhetoric.
Credit Suisse: Details on the ABS and Covered Bond Programs should come at this meeting, and the ECB is under pressure to deliver quantity. Rates are expected to be unchanged. The weaker run of data we have seen recently ensures that pressure remains on the ECB to eventually follow up with broad-based (including sovereigns) QE; however, we expect Draghi to wait for the results of the AQR in the second half of October, the take-up of the December TLTRO, and the effects of the ABS/CB programs.
Danske: We expect the ABS and covered bond purchase programmes to be in the spotlight at Thursday’s ECB meeting. As highlighted in the September statement, the Governing Council will reveal the detailed modalities of these programmes at the October meeting. We expect the tone at the following press conference to be centred on the new ‘soft target’ of the ECB of a balance sheet expansion. At the hearing before a European Parliament committee, ECB president Mario Draghi once again mentioned the new ECB soft target – an expansion of the ECB’s balance sheet ‘towards the dimensions it used to have at the beginning of 2012’. However, he did not interpret the low TLTRO take-up from last week as a disappointment but insisted that the December auction was needed in assessing the success of the programme. Hence, it seems evident that the ECB will be in waiting mode for the next couple of months.
Credit Agricole: We do not expect the ECB to announce public QE despite being under considerable pressure to do more, once again. The focus of today’s policy meeting which is held in Naples, Italy, will be on the operational details of the ABS and Covered Bonds purchase programmes. Those details are important, and we see scope for the ECB to surprise (e.g., if retained ABS are included), but from a broader angle the decisive shift towards balance sheet targeting is what matters the most, in our view. The ECB can be expected to take comfort of the recent weakening in the EUR, although unfortunately part of the related boost to inflation will be offset by lower oil prices. As regards the macro outlook, we will focus on how the Governing Council characterises the unexpected and somewhat puzzling drop in Eurozone core HICP inflation, to 0.7% YoY in September, the recent developments in inflation expectations, as well as subdued business surveys. If the ECB feels compelled to react, it cannot be ruled out eventually that the scope of private debt purchases is widened, or that TLTROs are made more attractive. There is no doubt that the door will remain open to sovereign QE as a last resort option – the code word for that would be a “clear deterioration of the medium-term outlook for inflation” – yet we do not see the point in buying sovereign bonds at those yield levels while QE transmission channels are unlikely to work in the same way as in the US. Everything that keeps the currency and sovereign bond yields under pressure will be welcomed in Naples and in Frankfurt.
Barclays: ECB President Draghi will likely stay on the dovish side at the press conference following the ECB meeting. While no policy change is expected after a large move at the September meeting, the markets will be watching for the details of ABS/CB purchase program to be released at this meeting and any sign of future EGB purchase during his press conference, which we expect to be officially announced by Q1 15.
DB: Although the market isn’t expecting any new policy action from the ECB today, asset purchases are set to start this month and the technical details of the ECB’s purchase programmes are set to be announced. More importantly any changes in ECB rhetoric will be closely watched as pressure has continued to build on the ECB to bring in full public QE. There will no doubt be questions about whether government bond purchases will be used if the ECB can't increase their balance sheet by the trillion Euros that Draghi has made a policy aspiration.
BofA: We expect Mario Draghi to remove concerns over the potential balance sheet increase by arguing thatTLTROs should be assessed together with the purchases of private assets, that these measures will help achieve the ECB’s mandate, and if not, that the central bank stands ready to act further. In term of size, we expect the ECB to go for “constructive ambiguity”. This would have several purposes. First, the ABS program is probably not mature enough to estimate its size. Second, as Draghi argued last month, TLTROs and asset purchases should be seen as complementary policies. Third, as we highlighted before, regulatory developments, which are still pending, will be key to determine the potential size of a program that would stimulate new lending. Regarding the duration of the program, we would expect also “constructive ambiguity”. The complementarity with TLTROs suggests at least a two-year duration, but we see advantages to leaving the program open-ended, given the aim of kick-starting the market and the pending regulatory unknowns.
SEB: The ECB is unlikely to take further action at this point by cutting rates or announcing new non-standardized measures. Draghi is expected to present details on the upcoming ABS purchasing program. Some details are already known (see here) and ECB's Constancio has stated that the bank will not yet announce the size of the ABS program. As regards TLTROs, the volume of the September tender was disappointingly low but ECB is likely not too worried expecting a considerably higher amount in the December operations. In our view the risk remains that the overall volume of all non-standardized measures will disappoint, opening up for a more aggressive broad-based bond purchasing program in Q1 2015 to combat an excessive period of low inflation. Regardless, Draghi probably needs to appear dovish in order to keep the euro on the weak side and not disappoint markets.
ING: Looking at developments since the September meeting, ECB President Draghi could start to feel like Greek mythology’s King Sisyphus, who was punished for chronic deceitfulness by being compelled to roll an immense boulder up a hill, only to watch it roll back down, and to repeat this action forever. Indeed, the ECB has witnessed several things rolling down. With the latest drop in confidence indicators, continued lacklustre credit developments, the low take-up at the first TLTROs and low inflation, the weaker euro is the sole “rolling down” boulder the ECB can enjoy..At this week’s meeting, we only expect the ECB to announce the details of the ABS/covered bonds purchasing programme.