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(Z1) Downside Pressure Resumes

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
     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
     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:
--MNI London Bureau; +44208-865-3829; email:
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