So much for yesterday’s Reuters report that there was disagreement within the ECB on the date of the first rate hike: which according to the Reuters trial balloon was supposed to be “as early as July” and not at the end of the year.
Moments ago the ECB released its Minutes from the latest meeting, which confirmed that the decisions were unanimous, and that contrary to the Reuters report, there was no disagreement:
members unanimously agreed with the proposal made by Mr Praet in his introduction to reconfirm the forward guidance on the Governing Council’s reinvestment policy, while enhancing the forward guidance on policy interest rates
Aside from that therer were no surprises, and in fact quite the opposite: as Bloomberg’s Richard Jones writes, the minutes “communicate the central bank’s intention so clearly so as to stifle markets”, and sure enough EUR rates vol continues to collapse.
Below are some of the more notable comments:
- “trade tensions were considered to have become more likely. In particular, concerns were expressed about the possibility that such tensions could lead to a more general decline in confidence throughout the global economy, beyond any direct effects from the imposition of tariffs. Against this background, the balance of risks to the global economic expansion continued to be assessed as tilted to the downside.”
- “it was widely noted that inflation convergence was becoming increasingly self-sustaining and its reliance on the contribution of the net asset purchases was gradually waning, although it continued to depend on an ample degree of monetary accommodation overall.”
- Given the uncertainty, it is prudent to leave the end of QE conditional on incoming data: “Regarding the enhanced forward guidance on policy interest rates, it was felt that the open-ended character of the state-contingent component should be emphasised.”
The ECB also said that the progress toward a sustained adjustment of inflation path substantial, confident that adjustment would continue and that open ended character of interest rate guidance should be emphasized
In other words, the ECB is hoping to bore traders to death, so that Mario Draghi can effectively implement the BOJ’s yield curve control without actually implementing it and only jawboning about it.
As for the ECB’s forward guidance, Eonias continue to price in only 14bps of hikes by December 2019 (official ECB guidance suggests first hike after summer 2019 at the earliest.
There was absolutely no reaction to the minutes in the market, with the EUR not even bother to budge, while the modest drop seen in the chart below took place well before the minutes.