Archives of “European System of Central Banks” tag

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EU could open legal case against Germany over ECB bond-purchases ruling

  
  Analysis
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Last week Germany’s constitutional court issued a decision ruling that the European Central Bank had overstepped its mandate with QE bond purchases,

  • German court in Karlsruhe gave the ECB 3 months to justify its euro zone QE stimulus programme, or the Bundesbank might have to step aside from it
Responding, the European Union’s highest court (which had previously permitted the ECB QE programme) and the European Commission said that EU law holds precedence over national regulations
Further now, on Sunday, EU Commission President Ursula von der Leyen said the EU executive might end up opening a legal case against Germany.
  • “We are now analysing the ruling of the German Constitutional Court in detail. And we will look into possible next steps, which may include the option of infringement proceedings,”
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These wort of legal wranglings are not a positive for EU coherency and stability. Nor are they positive for the EUR. Watching for developments on this front – both legal/political and for ECB actions ahead.
 Last week Germany's constitutional court issued a decision ruling that the European Central Bank had overstepped its mandate with QE bond purchases,

ECB has given the middle finger to the German constitutional court

  
  Analysis
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You’ll recall from earlier this week that the court ruled the European Central Bank must ensure its QE bond-buying program is proportionate or else Germany’s Bundesbank central bank may no longer participate.

  • And if its not the Germany Bundesbank central bank may no longer participate
The Governing Council of the ECB responded with a “Yeah, right …”:
said it “takes note” of the judgement
  • “The Governing Council remains fully committed to doing everything necessary within its mandate”
One member (at least) said the ECB will not respond directly to the court
  • court’s arguments are ridiculous
  • we could easily answer them
  • we should not do so as this is a risk to central bank independence
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So, its an ‘as you were’ for the ECB QE program.
You'll recall from earlier this week that the court ruled the European Central Bank must ensure its QE bond-buying program is proportionate or else Germany's Bundesbank central bank may no longer participate.

German judges partly dismiss ECB QE case

  
  Analysis
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The judges reach a 7-1 ruling in the ECB QE case

Despite the ruling, the court says that some action by the ECB QE program partially violates constitution and that some of the action is held illegal i.e. not valid in Germany.
Adding that the ECB decision is not backed by the EU treaty. The decision can be found here.

Although there are some caveats, I wouldn’t look too much into this. This just reaffirms that PEPP is going to be untouched, so the lack of suggestive price action means ‘let’s move on’.
I would argue that this is the key passage to take note of in the ruling above:

“Following a transitional period of no more than three months allowing for the necessary coordination with the Eurosystem, the Bundesbank may thus no longer participate in the implementation and execution of the ECB decisions at issue, unless the ECB Governing Council adopts a new decision that demonstrates in a comprehensible and substantiated manner that the monetary policy objectives pursued by the PSPP are not disproportionate to the economic and fiscal policy effects resulting from the programme. On the same condition, the Bundesbank must ensure that the bonds already purchased and held in its portfolio are sold based on a – possibly long-term – strategy coordinated with the Eurosystem.”

Watch: ECB president Christine Lagarde’s press conference at 1330 GMT

  
  Analysis
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All eyes on Lagarde now

The ECB statement was a non-event as expected, with the language on inflation and policy kept similar to the December meeting.

The ECB did officially announce its first strategic review in nearly two decades though and has taken some of the heat away from Lagarde ahead of her press conference; they say that they will provide further details on the scope and timetable later today at 1430 GMT.
As such, the focus of Lagarde’s press conference will be more skewed towards her tone and view on recent changes to the economic outlook i.e. improving data and the US-China trade deal – unless of course she decides to chime in on strategic review questions.
You can watch her live later here:

ECB leaves key rates unchanged in January meeting

  
  Analysis
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The ECB announces its latest monetary policy decision – 23 January 2020

  • Prior decision
  • Deposit rate facility -0.50%
  • Main refinancing rate 0.00%
  • Marginal lending facility 0.25%
  • Rates to remain at present or lower levels until inflation outlook robustly converges to target, reflected in underlying inflation
  • Announces first strategic review of policy since 2003
  • Further details on scope, timetable of review will be due later at 1430 GMT
  • Bond buying to continue until shortly before rates are raised
Pretty much a non-event as the details of the statement is very much a repeat of December – or so it seems, the ECB website link is down – besides the announcement of the strategic review, which was very much expected.
The euro is barely moved on the release as all eyes will turn towards Lagarde’s press conference, which is due at 1330 GMT later.
Update: Here’s the full statement.

“At today’s meeting the Governing Council of the European Central Bank (ECB) decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.50% respectively. The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.

The Governing Council will continue to make net purchases under its asset purchase programme (APP) at a monthly pace of €20 billion. The Governing Council expects them to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates.

The Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.

The Governing Council also decided to launch a review of the ECB’s monetary policy strategy. Further details about the scope and timetable of the review will be published in a press release today at 15:30 CET.

The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today.”

Bundesbank: No reason to fear that Germany would slide into recession

  
Analysis, Economy
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Comments by the Bundesbank in its latest monthly report

Germany
  • Domestic economy will probably continue to provide momentum
  • Manufacturing downturn could be leveling off
  • The slowdown is not likely to intensify markedly
  • The slowdown will probably continue in Q4 2019
  • The overall economic output could more or less stagnate
I think the thing that stands out the most for me here is the way that they are communicating the message rather than the message itself.
Take note of the words used: probably, likely, could. Now, that’s not exactly what I would call exuding confidence, not even the slightest. It sort of contradicts their main statement of having “no reason” to fear a recession.

Its European Central Bank policy meeting day – preview

  
  Analysis
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ECB monetary policy decision is coming later on Thursday 12 September 2019

  • announcement due at 1145gmt
  • ECB President Draghi’s press conference (his last one!) is at 1230 GMT
Various previews have been posted in past days, I’ll collate them all for easy reference a little later. But for now, BNZ have a handy summary:
  • consensus among economists is for a 10bp cut to the ECB’s deposit rate and the announcement of a resumption to QE, with the median estimate for a €30b per month pace of bond buying. 
  • The market prices 14bps of rate cuts in for this meeting, implying an almost 50% chance that the ECB could cut by 20bps. 
  • The ECB is widely expected to accompany any rate cut with the adoption of a “tiering” system for bank reserves, whereby some portion of banks’ reserves will be exempted from the negative deposit rate, in order to mitigate the negative financial impact on the banking sector. 
  • The bond market’s focus is likely to be on whether the ECB restarts its QE programme and, if so, what the size of such a programme might be. Despite the recent rise in European and global rates, expectations for the ECB are still high (as evidenced by a 30 year German yield of 0%) and were it to disappoint market expectations on QE, the risk is for an extension in the recent bond sell-off.
ECB monetary policy decision is coming later on Thursday 12 September 2019 

The question is not if but how much will the ECB deliver this week – Danske Bank

  
  Analysis
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The firm outlines its expectations ahead of the ECB meeting this week

ECB

Analysts at the firm say that “the question is not if the ECB will announce new initiatives but how much it will deliver” instead. I think that’s an argument that everyone already has figured out by now. So, let’s see what they are expecting:

“We expect the ECB to announce (1) a 20bp cut in the deposit rate (other key rates unchanged) and that the extended forward guidance (‘at present or lower…well past the horizon of net asset purchases’) will remain; (2) a 12-month QE restart of €45-60bn per month, albeit also acknowledging the downside risks given the recent hawkish communications from a few Governing Council members; and (3) a tiering system.”

At this stage, a cut to the ECB deposit facility rate, a tiering system and a change in forward guidance message is all but guaranteed. The big question is whether or not we will see the reintroduction of QE this week.

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Bundesbank sees risk of the German economy entering a recession

  
Analysis, Economy
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Comments by Bundesbank via its monthly report

Germany
  • Euro area economy growing at a subdued pace in Q3
  • Sees first signs of downturn in the labour market
  • German economic outlook remains unclear, hinges on exports
  • Economic activity could shrink over the summer (Q3) due to weak industrial activity
  • It is unclear if exports will regain their footing before the domestic economy becomes more severely affected
Given the way things are going, another economic contraction wouldn’t be surprising.
As mentioned over the last few weeks, the dichotomy of Germany’s economy (manufacturing and services performance) will eventually settle on one path and the likelihood of negative spillovers from the manufacturing to services sector grows with each passing day.
Thursday’s PMI data may give us a glimpse of that but lawmakers and policymakers will be certainly be hoping that the services sector will continue to bolster the economy through these tough times.

ECB monetary policy meeting today – preview of a live one – and where to for the EUR.

  
  Analysis
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The European Central Bank Governing Council will be dovish today, and may even cut the main rate.

  • 1145 GMT for the announcement
  • 1230 GMT is President Draghi’s press conference
  • Most expect the depo rate to remain on hold at -0.4%, although the probability of a cut (to 0.5%) is priced around 38% … which is not negligible …. this meeting is ‘live’.
Here’s a quick preview from TD:
  • The odds of a dovishly more proactive ECB look twice as high as those of a hawkish disappointment
  • The press conference is key to the ECB’s view on the rate floor, potential QE, low inflation expectations, and reinforcing a “symmetric” inflation target
And, on the euro:
  • With our base case fully priced and EUR weak, we see some scope upside if Draghi delivers as expected.
  • Dovish risks prevail, which could send EURUSD lower into fresh ranges. 
  • Next week’s FOMC may constrain follow-through.
European Central Bank dovish draghi
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