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--New Guidance To Remain Extremely Accommodative, Conditional
--Risks Becoming "Bigger And More Downward"
     LONDON (MNI) - The European Central Bank is becoming increasingly concerned
by "bigger and more downward" risks from protectionism and emerging-market
volatility as it begins to discuss how to reassure investors monetary policy
will remain easy beyond its projected rate hike towards the end of summer next
year, ECB sources said.
     While nothing has yet been agreed, the next version of the ECB's guidance
will signal policy will remain extremely accommodative for a long time and will
continue to be conditional on data, an ECB official told MNI.
     Current guidance is for rates to remain at historic lows at least through
the summer of 2019, and that the ECB's asset-purchase programme is anticipated
to end in December.
     This remains valid, with a 10-15 basis point increase in the ECB's deposit
rate a probable first move in September or October next year, but downside risks
are mounting, another ECB source said.
     --RISKS GROWING
     "Risks are becoming bigger and more downward, while in the euro zone the
economy remains resilient and firm," the second source said, adding that, as
things stand, the first rise in the deposit rate may be followed by a pause and
that it might take two or three steps to get it to zero from its current -0.4%.
     "Once the deposit rate is positive, maybe there could be a shift to focus
on the main refinancing rate, once interbank lending is functioning again and
the banks are getting less money for free," the second source said.
     In addition to trade headwinds and a potential slowdown in emerging
economies, Brexit and Italy's growing budget deficit also pose risks, the source
said, noting that higher oil prices could pressure growth and inflation
forecasts in opposite directions.
     Emerging-market turbulence would hit export sectors in countries like
Germany and Italy, said a third ECB official.
     --EMERGING-MARKET SLOWDOWN
     "The global economic slowdown stands at present as the only determining
factor that can potentially negatively impact on the eurozone's economic
performance," the third source said. "Our concerns are rising about an EM
slowdown."
     Discussion on the enhanced guidance, confirmed to MNI by six ECB officials,
is being led by the ECB's chief economist Peter Praet and fellow executive board
member Benoit Coeure. While the matter has yet to be passed to the Governing
Council and is not likely to be agreed and made public for some time, the
guidance should give an indication of ECB thinking as to how it could respond to
events over a one-to-two year horizon, the second source said.
     It will give markets a general direction of travel, but will not mirror the
Federal Reserve's dot plots, which show FOMC members' estimates of rate hikes
over time.
     It could also be used as a signal of policy continuity as the time nears
for ECB President Mario Draghi to step down at the end of October 2019, the
first source said.
     An ECB spokesman said he had no comment on enhanced guidance or downside
risks.
--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com
[TOPICS: M$E$$$,M$X$$$,MT$$$$,MX$$$$,M$$EC$]