FXStreet (Bali) – According to Economists at Bank of America MMerrill Lynch, the ECB is expected to sound dovish enough, but wait before acting to see if the bond market turmoil affects ‘final’ interest rates.
Key Quotes
“The ECB faces a complicated challenge. We have argued the tightening in monetary conditions (clearly unwanted) and the Greek saga leave the ECB with its finger on the trigger. Risks surrounding China certainly add to the dovish bias. But economic data remain strong and inflation data is behaving as the ECB forecast.”
“We still think that without a Greek shock, the central bank will want to wait before acting to see if the bond market turmoil affects ‘final’ interest rates, ie, the cost of borrowing for non-financial private agents, and whether technical factors throughout the summer correct some of the recent increase in real interest rates. Still, the ECB needs to sound dovish enough to ‘help the market’ get there.”
“We remain bullish rates overall, with negative net issuance likely to be supported by Draghi’s dovish tone. The very large cash balances that appear to be building globally may also help the constructive bias, particularly heading into a period of low seasonal Euro govie issuance.”
(Market News Provided by FXstreet)