20181025-法国巴黎银行-ECB__Weaker_momentum,_but_not_enough__6页_780kb

FLASH | EUROZONE Summary

Core Content

This document is a financial market analysis report from BNP Paribas, focusing on the European Central Bank's (ECB) October 2018 policy meeting and its implications for the eurozone economy, bond markets, and foreign exchange (FX) rates. It is intended for professional clients and eligible counterparties, and includes various legal and compliance disclosures.

Key Messages

• ECB's Stance on Economic Momentum: The ECB acknowledged a somewhat weaker economic momentum in the eurozone but reaffirmed its belief in a continued recovery and a gradual rise in inflation towards its target.
• End of QE: The ECB is strongly biased towards ending net asset purchases in December, although it left the decision conditional on incoming data.
• Italy's Situation: The ECB's comments on Italy were conciliatory but firm, indicating that monetary policy will not rescue the country, and that the Outright Monetary Transactions (OMT) program is the tool for such support.

Market Views

Bond Markets

• The ECB's October meeting and press conference are unlikely to have a significant impact on European rates markets.
• Near-term, the report favours risk-off trades, including:
  • Long 2y ASW vs short 10y ASW in Germany
  • Long 10y swap vs 5s and 30s swaps
  • BTP steepeners
• The ECB is likely to communicate its reinvestment policy at the December meeting, and there was no discussion on it during the October meeting.

FX Markets

• The EUR was supported by President Draghi's comments, which downplayed recent soft data and reinforced the ECB's commitment to ending Quantitative Easing (QE) in December.
• However, EURUSD gains were short-lived due to the broader rise in USD, driven by US rates and equities.
• The ECB's data-dependent stance and the recent softening of PMIs mean the EUR remains vulnerable to further data disappointments.
• The base case is for EURUSD to recover in the coming weeks if the ECB ends QE on schedule and markets anticipate the end of the Fed rate-hike cycle.
• Risks to the year-end EURUSD 1.20 target are skewed to the downside.

ECB's Policy Outlook

• The ECB emphasized tightening labor markets and accelerating wage growth as key factors supporting the inflation outlook.
• The ECB may still maintain accommodative monetary policy even after ending net asset purchases, as Mr. Draghi mentioned that the central bank would remain flexible.
• The ECB's forward guidance is likely to be more dovish, and TLTRO (Targeted Longer-Term Refinancing Operations) is seen as a potential tool for responding to adverse shocks, rather than additional QE.

Legal and Compliance Disclosures

• The document is non-independent research and may be subject to conflicts of interest.
• It is a marketing communication and not investment research.
• It contains indicative prices and performance data based on internal models and may not reflect actual market conditions.
• The information is not suitable for retail investors and is intended for qualified institutional buyers or professional investors.
• BNPP and its affiliates may have financial interests in the securities discussed, including acting as market makers or advisors.
• The document includes option risk disclosures, ETF disclosures, and disclosures for convertible securities.
• It is not a prospectus or public offering and should not be relied upon for investment decisions without further legal documentation.

Distribution and Jurisdictional Notes

• The document is distributed in various jurisdictions, including the UK, France, Germany, Ireland, Italy, Netherlands, Portugal, Spain, and Switzerland.
• It is communicated by BNPP branches in these countries, each subject to specific regulatory frameworks.
• The report is subject to MiFID II regulations and other local laws, and is only intended for relevant persons.

Conclusion

The ECB's October 2018 meeting did not change its central view of a recovery in the eurozone economy, with a focus on gradual inflation rise and ending QE in December. The report outlines the market implications of these decisions, particularly in bond and FX markets, and highlights the ECB's cautious approach to monetary policy and Italy's fiscal challenges. The document also includes extensive legal and compliance information, emphasizing its non-independent and marketing nature.