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Sept. 12, 2019, 3:15 a.m. EDT

The ECB decision is coming — here’s what to expect

ECB rate cut expected to be announced Thursday

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By Steve Goldstein, MarketWatch


AFP/Getty Images
European Central Bank President Mario Draghi

If there’s one thing that observers agree on with respect to Thursday’s European Central Bank meeting, it’s that policy makers will announce a series of loosening measures that won’t really make much of a difference to the struggling European economy.

The ECB will announce its decision at 1:45 p.m. local time (7:45 a.m. Eastern), followed by a news conference with President Mario Draghi at 2:30 p.m. Economists at Goldman Sachs said most of the measures will be revealed in the announcement, rather than the Draghi press conference.

“Failure to act now when the inflation outlook is weakening and, especially, not using the most effective instrument (QE), would signal a remarkable change in ambition,” said Anatoli Annenkov, an economist at Société Générale, referring to quantitative easing, which the ECB could restart by resuming monthly bond purchases.

The latest data, from August, shows inflation running a full percentage point below its target of nearly 2%. At the same time, the eurozone economy is just limping along, with year-over-year growth of 1.1% in the second quarter.

Related: The ECB’s challenge: Pushing rates further into negative territory without wrecking eurozone banks

Here’s a look at what banks are expecting out of the ECB.

Firm Expectations
Bank of America Merrill Lynch 20 bp deposit rate cut, tiering, QE of 30 billion euros per month for 9-12 month
BNP Paribas 10 bp deposit rate cut, rate tiering, strengthening forward guidance, relaxing TLTRO condition, QE of 50 billion euros per month
Deutsche Bank 10 bp deposit rate cut, forward guidance change, QE of 30 billion euros per month for 12 months, removing 10bp margin from TLTRO3 borrowing costs, reserve tiering
Goldman Sachs 20 bp deposit rate cut, forward guidance extension, QE of 200-250 billion total
ING 20 bp deposit rate cut, dovish rate guidance, QE of 30 billion euros per month for 9-12 months
TD Bank 20 bp deposit rate cut, QE of 40 billion euros per month, forward guidance to either capping rates through middle of 2021 or link hikes to inflation outcome
Nomura 10 bp deposit rate cut, QE of 30 billion euros per month until end of 2020, forward guidance change, rate tiering
SocGen 20 bp deposit rate cut, QE of 40 billion euros per month, rate tiering
JPMorgan 10 bp rate cut, QE of 30 billion euros per month, extension of forward guidance

This month, U.S. /zigman2/quotes/210598065/realtime DJIA +0.32%  and European stocks /zigman2/quotes/210599654/delayed XX:SXXP +0.09% have both added about 2%. Eurozone banks /zigman2/quotes/210599387/delayed XX:SX7E -0.22% have done particularly well over the last week. The euro /zigman2/quotes/210561242/realtime/sampled EURUSD -0.0718% has also crept higher against the dollar.

The yield on the 10-year bund /zigman2/quotes/211347112/realtime BX:TMBMKDE-10Y -6.83%  has climbed from -0.7% earlier in the month to -0.56%.

Also read: Too little or never enough — The ECB risks delivering only disappointment

/zigman2/quotes/210598065/realtime
US : Dow Jones Global
26,913.00
+85.36 +0.32%
Volume: 110.95M
Oct. 22, 2019 12:24p
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/zigman2/quotes/210599654/delayed
XX : STOXX
394.59
+0.37 +0.09%
Volume: 0.00
Oct. 22, 2019 5:50p
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/zigman2/quotes/210599387/delayed
XX : STOXX
93.17
-0.21 -0.22%
Volume: 0.00
Oct. 22, 2019 5:50p
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/zigman2/quotes/210561242/realtime/sampled
US : Tullet Prebon
1.1142
-0.0008 -0.0718%
Volume: 0.0000
Oct. 22, 2019 12:24p
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/zigman2/quotes/211347112/realtime
add Add to watchlist BX:TMBMKDE-10Y
BX : Tullet Prebon
-0.36
-0.02 -6.83%
Volume: 0.00
Oct. 22, 2019 6:00p
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Steve Goldstein is MarketWatch markets editor for Europe. Follow him on Twitter: @MKTWgoldstein.

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