Tomorrow’s ECB meeting will probably remain largely ceremonial, as the Governor of the European Central Bank, Mario Draghi, is expected to deliver his last monetary policy meeting after an eight-year term while German Isabel Schnabel is expected to get nominated within ECB board in replacement to Sabine Lautenschläger. Questions about the duration of the next Brexit extension planned by the end of the week, the European Commission’s concerns about France’s tax reduction plan and Italy’s draft 2020 budget as well as upcoming US – EU talks should keep investors’ attention. Consequently, the single currency should remain under pressure for now.
ECB Governor Mario Draghi monetary policy meeting is expected to stay light following a dense easing package announced earlier in September that included a 0.10 percentage point cut of the deposit facility rate to a record low of -0.50% as well as the introduction of a new round of quantitative easing at a pace EUR 20 billion per month starting from November. Despite the minutes of the ECB’s September meeting confirming a “clear majority” of members in favor of resuming asset purchases, it appears that one-third of the 19 members, including French and German central bankers, the largest EU member countries, have expressed their disapproval. Intensified opposition would be bad news for the ECB, whose legitimacy risks being questioned by public opinion and politicians in the single market, a rather negative headline for the euro. Although the outlook of an end to further stimulus from the ECB would be EUR-supportive, a stronger support would come from an acceleration of fiscal stimulus within the bloc. Yet, the measure seems rather limited at first sight, given the European Commission’s latest negative reaction to Rome’s 2.20% budget deficit and France’s EUR 9 billion tax reduction plan. However, we believe that Christine Lagarde’s entry into function may well convince EU leaders to relax the current spending rules. Although further monetary easing cannot be cannot be ruled out, considering September inflation given at 0.80% (prior: 0.90%), a three year low, and a dull outlook amid current trade tensions, the ECB Committee is not expected to put much on the table.
