Today’s ECB highlights:
- Taper&Extend – Draghi announced monthly asset purchases of €80 billion will run to the designed end of March 2017 period, then taper to €60 billion/month and extend to at least December 2017.
- ECB expects inflation to guide higher alongside inflating energy prices (Eurozone CPI measured 0.6% Y/Y in November, up from 0.5% in October and 0.4% in September).
- Rates are expected to stay at present or lower levels for an extended period of time, well past the horizon of asset purchases.
- Continued messaging that if warranted, the ECB will act to use all instruments in its tool belt to support economic conditions.
EURO Positioning: on 12/6 we issued a short signal on EUR/USD via the etf FXE, citing the impacts of strong USD alongside the #TrumpTrade, increased fragmentation in the EU & Europe (with the most recent example Italy’s referendum and exit probability), and the demographic headwinds crunching consumption.
We’re playing our trading risk range of $1.05 to $1.08 on the EUR/USD and have a bearish intermediate term TREND bias (broken TREND at $1.12) on the cross.
GIP Flashes Quad 3 &4:
As our proprietary GIP (growth, inflation, policy) model below shows, we see Eurozone growth anchored in Quads 3 & 4 in 2017, indicating slower growth.
In today’s call, the ECB’s staff updated its economic projections, which didn’t largely diverge from the prior September assessment:
- Eurozone GDP Projections at 1.7% in 2016 (UNCH vs prior September projection), 1.7% in 2017 (vs 1.6% prior), and 1.6% in 2018 (UNCH vs prior).
- Eurozone CPI Projections at 0.2% Y/Y in 2016 (UNCH vs prior), 1.3% in 2017 (vs 1.2% prior), and 1.5% in 2018 (vs 1.6% prior).
We continue to expect growth to remain lower and slower for longer alongside our themes of #EuropeSlowing & #EuropeImploding, and predict that Draghi’s ECB stimulus via bond purchasing will continue to come short of the intended goal of stimulating the underlying economies.
