ECB Leaves Rates Unchanged As Expected, Prices New TLTRO at MRO+10bps

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    Helmholtz Watson

    ECB interest rates on the main refinancing operations…


    Helmholtz Watson

    At Press Conference:

    ECB 2019 GDP forecast slightly higher but 2020 and 2021 lowered

    GDP forecasts:
    2.1% in 2019 (vs 2.0%)
    1.4% in 2020 (vs 1.6%)
    1.4% in 2021 (vs 1.5%)

    2019 1.3% (vs 1.2%)
    2020 1.4% (vs 1.5%)
    2021 1.6% (vs 1.6%)


    Draghi Opening Statement

    Data was ‘somewhat’ better than expect in Q1
    ECB is determined to act in case of adverse contingencies
    ECB ready to adjust all instruments
    Risks remain tilted to the downside
    Global headwinds continue to weigh
    Incoming data point to somewhat weaker growth in Q2 and Q3, reflecting ongoing weakness in international trade
    Construction is showing resilience and labour market is continue to improve
    Wage pressures continue to rise
    Cross-check confirms an ample degree of monetary accommodation necessary
    All countries should push for more growth-friendly policies
    Must raise long-term growth potential


    Draghi Q&A:

    Uncertainty about global trade has increased since March

    Data about the economy are not bad
    There isn’t a substantial worsening in the outlook, that’s why the extension is for seven-months
    Our readiness to act in case of contingencies was an important part of our discussions and it was more granular. ‘Several’ members raised the possibility of rate cuts

    Drop in market-based inflation expectations is global, certainly something we take into account
    There is no probability of deflation
    There is still confidence in the baseline forecasts but uncertainty is prolonged and increased. We had hopes some would be removed. These risks have gained importance.
    We are ‘not at all’ accepting current market-based inflation expectations

    The view that we should pursue our goals in a symmetric fashion was also discussed
    There was a long discussion about whether negative rates were hampering bank profitability that could hamper lending.

    So far we see no aggregate effect but it’s not taken for granted there wouldn’t be if we cut further, so that’s why there is a mention of ‘mitigating effects’ in the statement

    Financing conditions have become slightly tighter
    Members raised possibility of rate cuts, APP restart, further extension in forward guidance

    The decision today was unanimous
    The discussion today confirmed there are tools available and the determination to act if needed
    Asked if it’s more likely the ECB will hike than cut as its next move, says ‘no’

    We should create a European authority for anti-money laundering and empower it

    Current conditions are ‘not even comparable’ to when I said ‘whenever it takes’, we have the lowest unemployment rate in many years
    There is a disconnect between what markets are showing and what surveys show
    Markets are seeing something bigger than a trade dispute. Is it a disruption that goes beyond trade? I hope not but we have to take the risks seriously


    No risk in Leanding to France Appears ...

    French 10-year yields below zero % for the first time
    Follows #Draghi comments about lower rates What is this #GiletsJaunes ?


    ECB’s Draghi: Dovish Speech in Sintra

    QE still has considerable headroom
    QE limits are specific to contingencies faced by the ECB
    If outlook doesn’t improve, additional stimulus is needed
    More rate cuts are part of the central bank’s toolkit
    Negative rates have proven to be a very important tool
    Indicators for the coming quarters point to lingering softness
    ECB able to enhance forward guidance by adjusting its bias and conditionality to account for variations in adjustment path of inflation
    In the coming weeks, we will deliberate how our instruments can be adapted commensurate to the severity of the risk to price stability


    Former ECB chief economist Praet:

    ECB will look at tiering if rate cut on agenda
    Shouldn’t exaggerate today’s market reaction
    Wages and inflation are improving in eurozone
    Don’t blame ECB for uncertainty triggered by trade
    Markets don’t say ‘act now’, they want to be reassured

    Helmholtz Watson

    A new member of the negative yield club, Spain’s 7yr bond trading negative yield for the first time ever, today.

    Randy Woodward @TheBondFreak

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