JP Morgan Analysis of the ECB press conference

No surprises from the ECB today, but if someone would like an in-depth analysis of the press conference, here is a good summary from the US bank JP Morgan:
The ECB did not send a strong policy signal today. The central bank is clearly watching geopolitical risks and the mixed economic data closely, but more time is needed to assess both of these and their impact on the macroeconomic outlook was judged to be modest for now. Should downside risks materialise, the ECB is ready to act, with sovereign QE an option. But, for now, the focus is on the measures already taken and announced. Draghi noted that the June policy package had led to an “easing” of the policy stance and that the upcoming TLTROs will “enhance” it further, and that preparatory work for possible ABS purchases is still continuing. Draghi also did his best to get even more out of the currency by emphasising repeatedly the differences in the “monetary policy cycles across the major advanced economies.”
On growth, Draghi did not sound panicked by the recent data. He noted that the survey data have been better than the hard data, which have been impacted by calendar effects. But, even among the hard data, he noted that some of these have been okay (retail sales, monthly unemployment flows). Overall, he felt that there may have been some slowing in momentum recently, but not enough to change the overall outlook. He was particularly encouraged by credit developments, with loans to nonfinancial corporate showing some stabilisation and the bank lending survey showing improvements in credit supply and demand. He linked the pickup in loan demand to the upcoming TLTROs, saying that these were coming at exactly the right time. Asked about the Italian GDP contraction, he argued that countries that have done more on structural reforms are doing well and that monetary policy has limits when structural problems are impeding investment, business start-ups and economic rebalancing. Overall, the ECB seems to be taking a balanced approach to interpreting the recent data. And if 3Q14 will be better also at the level of GDP, as we expect, then the data should provide further reassurance in the coming months.
On inflation, Draghi said that the July outturn of 0.4%oya was expected, suggesting that the low prints that are likely in August and September may not come as a new shock (even though they are below the staff’s June projections). This still suggests a significant tolerance of low inflation outturns and declines in shorter-term inflation expectations. The focus remains on the medium/longer horizon, over which Draghi still saw expectations as firmly anchored. He added that this would be confirmed by next week’s Survey of Professional Forecasters.
On the TLTROs, Draghi quoted a market survey, which suggested that expectations were for TLTRO take-up of €450-€850bn in total over all of the operations. He was not asked specifically about the first operation, where take-up is more uncertain, but his comment may suggest an inclination to at least wait for the second tender in December before drawing strong conclusions about its success. On the possible ABS purchases, he gave a few more details about the preparatory work, without shedding much light on how large this programme could be.

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