State Street Comments on ECB Monetary Policy Decision

In reaction to the European Central Bank (ECB) meeting today, Timothy Graf, head of macro strategy for EMEA at State Street Global Markets; Brendan Lardner, active fixed income portfolio manager at State Street Global Advisors; and Antoine Lesné, head of EMEA strategy & research for SPDR ETFs, offer their views.

Graf comments, “Today’s comments from ECB president, Mario Draghi are confirmation the central bank is not ready to offer any details on the end of non-standard monetary policies. Concerns over euro strength as expressed recently in unofficial channels are giving them pause for thought, as the recent rise in the single currency is likely to limit price pressures and keep inflation below target.. Even so, Draghi’s attempts to highlight and talk around the euro’s strength have only had the effect of pushing it higher.”

Lardner comments, “Mario Draghi gave little fresh information at today’s ECB meeting, deferring any decision on the tapering of the ECB’s asset purchase programme until next month.  While there has been a noticeable firming in growth across the region, inflation continues to disappoint on the downside, not helped by the recent strength in the euro, which will have a dampening effect.  A tapering of the purchase programme will have to take place from next year due to technical constraints; however it is clear from today’s meeting the majority of members on the Governing Council want more time to assess the incoming data to allow the relevant bodies within the bank to formulate plans for a gradual wind down of the programme.  It appears when the decision to taper is made, policy accommodation will be withdrawn at a cautious pace that is heavily data dependent.”

Lesne comments, “No real new information came out of the ECB comments today. Contrary to what was expected post the Sintra Forum in June, it may still be premature to announce any formal direction and plan as to how this tapering will unfold. Information on timelines and conditions of tapering will come later in October. A cautious approach from the ECB is probably warranted. Meanwhile low inflation and a strong euro against the backdrop of stronger economic growth and improving consumer confidence still provide a positive environment for risk assets. We expect financial conditions to remain easy until the end of the year for now. The Euro remains strong, but it’s also driven by a weaker US environment. However this may be more of a concern if it increases too fast.”