MNI STATE OF PLAY: ECB To Reaffirm QE Wind-Down

By Luke Heighton

     LONDON (MNI) - Thursday's meeting in Frankfurt is unlikely to see any

surprises, with the ECB having made clear in June its intention to taper its APP

programme, while keeping key interest rates at current levels until at least the

summer of 2019.

     The ECB will also publish macroeconomic projections for the euro area.

     Here are six things to look out for:

     Weakening data: Despite signs of softening numbers and slowing growth, the

ECB has made clear it believes underlying data supports its overall medium-term

inflation targets. Thursday's announcement is an opportunity to convey

confidence ahead of a likely rate rise towards the end of next year.

     Trade tensions: While relations between Europe and the U.S. seem to have

improved since European Commission President Jean-Claude Juncker met President

Donald Trump in July, the prospect of a worsening U.S.-China trade conflict

remain a core drivers of global macroeconomic uncertainty. Will Draghi place

greater emphasis than he has done previously on downside risks from global

trade?

     APP: In June Mario Draghi announced that it was "anticipated" the ECB's

massive QE programme would cease by the end of 2018, with the pace of monthly

purchases slowing from 30 billion euros to 15 billion euros from October, before

ending in December. Despite this, MNI sources last week indicated that a number

of central bank governors want to see a "final decision" this month. But others

have said that the ECB may still preserve some room for manoeuvre, by keeping

the word "anticipate" in the reference to the likely conclusion of the

purchases. 

     Reinvestments: July's meeting revealed that not only had the Council not

discussed the issue of reinvesting the principal payments on its maturing bonds,

"we haven't even discussed when to discuss it". Yet some debate is expected

between now and the end of the year, as the calls for forward guidance over what

happens after APP ends become ever louder. Speculation increased last week after

executive board member Benoit Coure - a possible future ECB president - said

Greek bonds could be included in future ECB reinvestments programmes.

     Succession: Going into the August break the Bundesbank's hawkish chief Jens

Weidmann was widely regarded as the standout candidate to replace Draghi. Then

reports emerged that suggested Weidmann may be sacrificed at the high altar of

German EU Commission/Council ambitions. They may not admit it, but the

succession and its policy implications is an issue that's on every Council

member's mind - and almost certainly one Draghi will be asked about.

--MNI Frankfurt Bureau; +49-69-720-146; email: luke.heighton@marketnews.com

--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com

[TOPICS: M$E$$$,M$X$$$,MX$$$$,M$$EC$]