ECB Preview: Dovish inflation upgrades in store - TDS

Analysts at TDS are looking for Draghi to once again deliver a dovish message in the face of an upbeat macro story while the focus will be on higher 2017 HICP forecasts, but the crude oil futures curve also points to a small 2018 inflation forecast downgrade.

Key Quotes

“We look for the asymmetric forward guidance to remain fully intact for now, and for the TLTRO II programme to be extended for another year. But the risks of a more hawkish shift from the ECB pick up into the summer, once we get past French elections.”

“FX Outlook: We have returned to a bearish stance toward the EUR. We continue to look for further declines in the weeks ahead, particularly against the USD.”

“Rates Outlook: There now appear to be premiums in the market associated with the impact of ECB forward guidance on the near-term path for rates, as well as the impact on the term premium further out. Overall, EUR 2y1y looks to be about 30bps lower than current 10y USTs would suggest, while 5y5y is around 30-40bps lower than Treasuries would suggest. This has opened up a gap in bunds that currently stands around 70bps and reflects the potential risk factor for when the ECB decides to pivot towards a more hawkish message.”