ECB PRESS CONFERENCE SUMMARY

ECB Pre-Commits to More Stimulus: ECB’s Lagarde had stated that the GC were in agreement that given the current backdrop, risks were clearly tilted to the downside. As such, all members had agreed that it was necessary to take action and recalibrate instruments at December, which will also provide an update on the latest staff economic projections (likely to be downgraded). The determination by the ECB that they will act in December was further emphasized by Lagarde stating that there is little doubt the ECB will act at the next meeting. Alongside this, the ECB will look at all instruments, not just one, raising the question as to what a new stimulus package will look like and potentially leaving the door left slightly ajar for a rate cut.

Expectations for December: As it stands, analysts had been looking for another EUR 500bln boost to PEPP, which may well be accompanied with an increased pace in monthly purchases and greater deviation from the capital (supportive of peripheral debt), much like at the beginning of the first wave. With regard to a rate cut, money markets continue to price is a low probability (20%) of such action and given that the ECB had reduced their concerns over the exchange rate with Lagarde saying that FX is not a driving factor at this point, I will continue to rule out a rate cut for now.

Market Reaction

Given that pre-commitment from the ECB to act, the usual price action had been seen with both the DAX and bund futures pushing higher. Alongside this, the Euro had also extended losses to the downside with a break below 1.1700, however, it is important to note that during the crisis more stimulus has not necessarily been a Euro negative scenario. Reminder, a bigger than expected QE announcement back in June had coincided with Euro strength. As such, external factors pertaining to recent lockdown measures are likely to be more at play with current price action.

DAX CHART: 1-MINUTE TIME FRAME

Source: IG