The ECB meeting is finally here and the suspense will be over as the ECB announces its new round of stimulus. We expect the ECB to cut the deposit rate by 10bp to -0.4%, to introduce a two-tier deposit rate system aimed at reducing the cost to the banking sector and to signal that the deposit rate could go even lower. We also look for the ECB to frontload QE purchases by EUR20bn per month in the spring (see ECB preview: Another 'menu' of easing, but will it be enough , 7 March 2016).
The market reaction to this 'package' is likely to be a small disappointment in fixed income markets, where a slightly bigger deposit rate cut is priced in and some analysts are looking for a 20bp cut. However, it seems that many equity investors have feared a 'December deja vu', when the ECB disappointed, and have been reluctant to buy ahead of the ECB meeting. Hence, the measures we look for in combination with a clear easing bias might be a small relief for the stock market.
We will also have data on German trade balance, German labour costs and US jobless claims. But it will be overshadowed by the ECB meeting.
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