Investment - Articles - No Trick and No Treat as The ECB plays it cool

Jeremy Batstone-Carr, European Strategist at Raymond James: “The decision was widely anticipated by financial markets where a slightly weaker euro points to a mildly dovish tilt in the accompanying statement.  Specifically, the statement refers to the fact that while energy prices have continued to rise, something it had to say given the extent to which energy prices now comfortably exceed the central bank’s forecasts, and pose an upside risk to the inflation outlook (and downside risks to growth). Encouragingly, however, reference is made to the extent to which underlying inflation has remained relatively stable and that wage pressures remain becalmed.  In recognition of the adjustment in regional sovereign bond markets, notably in France, the central bank points out that financing conditions have tightened since the last rate-setting meeting on 10th September.  Without a material pullback this is thought likely to impart downward pressure on both growth and inflation in coming months. Today’s news was overshadowed by confirmation that President Lagarde will step down on 7th February next year.  The move had been anticipated for some months, and clarification was thought likely today.  The timing is important as the European Council will be able to appoint her replacement before a possible right-leaning shift in next April / May’s French Presidential election.  To a lesser, but still important degree, the Bank’s high profile Governor Isabel Schnabel will step down in January and will be followed, in May by Chief Economist Philip Lane.”   

James Bilson, Global Fixed Income Strategist at Schroders, said: ''The ECB made an important nod to tightening financial conditions and a weakening growth outlook in today’s meeting. While many central banks are in a difficult position, the ECB's position is acutely challenging - with rising downside growth risks, inflation too high and risks to the upside over coming months. A resolution to the crisis in the Middle East would be a lifeline here, but it is not something it can rely on. We still expect the ECB to hike one more time in December, but the chances of another increase after that are diminishing by the day, as its so-far singular focus on inflation morphs into a greater consideration of the inflation trade off with growth. We retain a negative view on the euro given this outlook."