ECB meeting preview: Press conference to steal the headlines?

Benjamin Weiss, Tuesday, 14 July 2020

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We’re in very treacherous times at the moment. The coronavirus hasn’t gone away, but yet things seem to be slowly returning to normal. But while the European economies look to be on the right track at least, the threat of a second wave of COVID-19 is a realistic danger. As for the ECB (European Central Bank), it made decisive action last month, but will it choose to act once again in this period of massive future uncertainty or will the press conference and the forward guidance it will offer steal the headlines?

When is the ECB interest rate decision?

The ECB interest rate decision will take place on Thursday 16 July. It is scheduled to be released at around 12:45 (BST), and the resulting press conference will happen 45 minutes later.

What is expected from the ECB decision?

President of the ECB Christine Lagarde implied last week that no significant action will be taken this time around, and we have reason to believe what she’s saying. ‘We have done so much that we have quite a bit of time to assess incoming data carefully,’ she told the FT recently. This cautious approach would make sense, given the additional€600 that was added to the stimulus package last month.

Take into account the socio-economic situation across Europe at the moment as well. Many flights have resumed this month, with several countries allowing tourists to visit. Shops have been steadily reopening and restrictions are being lifted. There is, of course, a worry of the pandemic reigniting, but for the most part society seems to be returning closer to 2019 standards.

This relaxation of restrictions correlates with data from the EU, with, for instance PMI figures hinting at a slowdown in the economic downturn. Stocks have also pushed higher, mirroring a number of US stocks that have been recently pushing all-time highs.

What does this mean for the ECB though? It means there’s less pressure for any more immediate intervention. Whether or not the mini revival is a direct result of previous ECB measures or not, the implications are that whatever the central bank’s doing is working.

One thing that is expected to be announced, though, is more clarity on future action regarding the PEPP (Pandemic Emergency Purchase Programme) after it was recently ramped up to a total of €1.35 trillion. The whole tone of the announcement, given that no fireworks are expected, could have a huge focus on forward guidance and future intentions of the ECB. As a result, the press conference could be the main attraction this time around. Anything that can be inferred from it might be the thing that moves markets, rather than the interest rate decision itself.

What markets will be affected by the ECB interest rate decision?

Although highly unlikely, if there are any surprises on Thursday and the ECB does choose to take further action on monetary policy, the potential for volatility in the markets is absolutely astronomic. This could impact European stocks and EUR especially.

Given this is not anticipated, any forward guidance given will be the main mover of markets. Anything divulged about the continuation of the PEPP will have a big impact on European businesses, especially smaller firms that are more reliant on this support. For example, last time out, the PEPP was extended past the initial 2020 end date another shift of the goalposts could cause Euro stocks to move.

EUR is perhaps less likely to be volatile, with interest rates all-but fixed at rock-bottom lows. 

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