Economics Research The UniCredit Weekly Focus
Economics Research The UniCredit Weekly Focus
Economics Research The UniCredit Weekly Focus
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26 September 2013 <strong>Economics</strong> & FI/FX <strong>Research</strong><strong>Weekly</strong> <strong>Focus</strong><strong>The</strong> Week Ahead<strong>The</strong> upcoming economic week will be dominated by next Wednesday's ECB meeting (reaffirmingthe bank’s prudent and dovish stance), the final round of global sentiment figures trendinghigher (but breathing in the US) as well as an US labor market improving further, but unlikelyto trigger any Fed action.ECB to remain dovishWe expect next Wednesday's ECB meeting (Thursday is a public holiday in Germany) to berather uneventful. It is extremely likely that rates will remain unchanged, and we do not foreseeany new unconventional measure at this stage. <strong>The</strong> intra-meeting period has been characterizedby two main features: a confirmation of the recent improving trend in growth indicators and adovish re-pricing of money market future rates.On the growth front, the news has been encouraging. In September, the Composite PMI rosefor the sixth consecutive month to a level consistent with 0.2-0.3% qoq GDP growth (see ourreview section). In addition, the German Ifo increased moderately further, confirming thebroad-based nature of the German recovery, while some "paybacks" in business sentiment(manufacturing PMIs, INSEE headline) are just a breather after the previous spurt. Overall,however, the encouraging data are unlikely to convince the ECB to reconsider the downsiderisks to its own GDP outlook. Accordingly, Draghi will continue to sound dovish, and the forwardguidance will be confirmed in its current version.On the interest rates front, the re-pricing in money markets has been significant. <strong>The</strong> impliedrate of the December 2014 Euribor contract has declined by 20bp since the September 5 ECBmeeting, with most of the move caused by US-specific factors, namely a lackluster non-farmpayroll figure and the Fed’s decision to keep QE3 purchases unchanged. <strong>The</strong> remaining partof the rally in short rates is mostly explained by a number of dovish statements by ECB officials,including Draghi, who have left the door wide open to further easing measures. We expectthe ECB to remain alert and “ready to act” on liquidity. On balance, the latest rhetoricstrengthens our view that the ECB will launch another LTRO in the coming months, but thetiming of the new operation has become more uncertain. A delay in the scaling back of Fedasset purchases (with the EUR appreciation remaining so far modest in trade-weighted terms)raises the probability that the ECB may decide to wait until early 2014 before acting.EMU: A WELCOME RALLY IN SHORT RATES0.750.70Euribor Dec-14 (implied rate, %)0.650.60ECB forward guidance0.550.500.450.401-Jul 13-Jul 25-Jul 6-Aug 18-Aug 30-Aug 11-Sep 23-SepSource: Bloomberg, <strong>UniCredit</strong> <strong>Research</strong><strong>UniCredit</strong> <strong>Research</strong> page 11 See last pages for disclaimer.