Meeting of the ECB – What to expect?

My point on the ECB is the following
In June and in Jackson Hole Mario Draghi has made a lot of announcements. In June, at the ECB meeting, they were related to the ECB action only. In Jackson Hole he said that, alone, the ECB will not be able to manage the risk of deflation. In that case the ECB needs help from governments to support internal demand with a more active fiscal policy.
So
1 – The ECB will have to stick to its commitments and give precisions on TLTRO and ABS operations (time schedule but I am not sure they could give the amount before the first TLTRO)
2 – The message from the ECB will have to be consistent with the Jackson Hole message
3 – the ECB will wait to see if fiscal bodies start to move or not. In other words, Mario Draghi have asked for a more active fiscal policy. Before doing something new he must see if there is a change on governments’ side
4 – if tomorrow the ECB does something different from what have been already announced (QE for example) he creates a situation where it reduces incentives for government to do something
5 – If nothing has changed on fiscal side at the beginning of next year, then the ECB will put in place a QE
6 – As 5year in 5year inflation swap are again above 2%, inflation expectations are more consistent with the ECB view. (see chart below)
7 – Will the ECB reduce its refi rate (to 0.05%)? This would reduce Euribor rate to almost 0. The probability is not null. If something has to be done it will be on this point.
8 – For me the ECB has to give a message consistent with Jackson Hole. If it is not the case it would mean that the balance of strength is clearly on governments side. The risk of loss of credibility would be large for the ECB.

Swap5y-5y

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