If the ECB increase QE then December is the first month circled on Goldies calendar
- Expects an unchanged decision at October meeting (next week)
- QE could be extended in Dec or Jan
- Draghi will have a strongly dovish tone next week
- Look for questions on the euro as current strength will be weighing on the minds of the governing council
- Look for what Fed moves will mean for ECB policy
- Goldies baseline scenario is a QE extension to mid-2017 with tapering from Jan 2017
- Only a big uplift in GDP and/or a rise in the core clearly above 1.0% would see QE end by Sep 2016
- ECB has other options which are likely to be used in the event of a sudden change in the economy. 1). Increase in QE on something like a hard landing in China. 2). Sharp euro strength on safe haven flows would be met with further cut to deposit rate
Goldman's economist Dirk Schumacher with the client note
I think talking is about all we'll get from the ECB as the year rolls off, unless the domestic economy stumbles. At the moment it's on its knees, which is a step up from flat on its face. We've got a few months of developments to chew over first though
Goldies expect the ECB QE machine to be reloaded in December
