Draghi hints at ECB policy reversal in his Sintra spreech

The ECB has not only given up on its policy normalization plans, it has over the past two weeks embarked on the road towards further policy easing. At the June policy meeting, ECB President Draghi already adopted a very dovish tone and stated that the whole monetary toolbox was available in case of contingencies.

Highlights:

  • Following a very dovish June press conference, ECB President Draghi hinted at today’s Sintra speech at new easing measures.
  • Draghi has made clear that additional stimulus measures – potentially including all instruments – would be necessary unless the outlook improves.
  • Other ECB speakers have made rather clear this week that the recent collapse in inflation breakevens is seen as intolerable.
  • We now expect further ECB monetary policy action in September, if not earlier.
  • The size of the easing package is uncertain, and may depend on exogenous factors (trade tensions, Brexit, Italy). Given the risks associated to the de-anchoring of inflation expectations, a light-hearted approach is unlikely.
  • Below we discuss and rank the available easing tools.

Download the full publication below

DRAGHI HINTS AT ECB POLICY REVERSAL IN HIS SINTRA SPREECH

RELATED INSIGHTS

CHINA’S Q4 GDP GROWTH SURPRISED ON THE UPSIDE, BUT RISKS TO THE OUTLOOK HAVE INCREASED
This morning, China published its Q4 GDP growth alongside with December monthly activity data. Q4 growth accelerated to 6.5% yoy which lifted total 2020 GDP to 2.3%. December real activity data were more mixed. While exports came in strongly, important domestic demand components were a bit unsteady.
COVID-19 FACTS & FIGURES
US President-elect Joe Biden has unveiled a $1.9 trillion stimulus package proposal. Following the recent increase in cases, China has imposed new restrictions and lockdowns in the Hebei province. Canada has implemented new restrictions and a provincewide curfew in Quebec that will last until February 8. German Chancellor Angela Merkel warned that the recent rise in Covid-19 cases could force the country to prolong the nationwide lockdown until April.
EQUITIES: STAY POSITIVE WITH A VALUE-CYCLICAL TILT
Following a monster rally in stocks last autumn, multiples are well above historical averages, but equity investors can count on lingering low yields, tighter credit spreads and increasing central banks’ balance sheets which in turn maintain low the cost of equity and the discount rate of future cash flows.