ECB preview: no big changes ahead of Jun 10th meeting

  • No material changes expected 
  • More hawkish (EUR positive) more likely than more dovish 
  • Brighter economic outlook since March 

The European Central Bank (ECB) convenes on Thursday (Jun 10th) amid a much rosier economic outlook than at the start of the year. But with the central bank having communicated its plans to front-load asset purchases, there is not expected to be any material change in policy or communication. It will be hard to avoid taper talk so how the ECB responds to questions around tapering will be of central importance to the market’s expectations and the euro. 

At the March meeting the ECB said it would pick up the pace of asset purchases, front-loading the PEPP scheme, but that it could still use less than the full envelope of €1.85tn if favourable financial conditions can be maintained without spending it all. The outcome of the March meeting was very much that the PEPP programme is more likely to end by March 2022 than be extended, albeit policy will remain very accommodative well beyond that point.  

To taper? 

Yields have been pressing higher but have retreated from the May peaks. The increased pace of asset purchases that was agreed in March came as a response to rising yields at the time. But the economic outlook – chiefly driven by a strong vaccine rollout that was slow to start but is now firing on all cylinders – has improved greatly since then. The ECB has been taking the line that inflation is temporary and rising bond yields reflect better fundamentals, so I don’t think it will be unduly concerned by a higher rate environment now due to the better economic picture. This will make talk of a taper very difficult to ignore. The language around the speed of asset purchases may change somewhat, and this could drive EZ yields + EUR higher. It will be very interesting to see what the ECB says about the state of financing conditions and it is sure to continue to tie PEPP purchases to maintaining these as ‘favourable’.  

The big risk for EUR crosses around this meeting is: does the ECB silence taper talk with enough vigour to keep yields in check, or does it allow the market to think the more hawkish voices are winning the argument about when the central bank eventually exits emergency mode. 

New projections 

Inflation has picked up since the last meeting, which could see the forecast for 2021 and 2022 revised upwards from the March level. EZ inflation rose to 2% in May from 1.6% in April, the first time it’s been on target in over two years. With growth in Q1 a little light, the rebound in the summer should mean GDP projections remain broadly unchanged. 

What has the ECB been saying lately? 

ECB speakers have been offering a few titbits since the last meeting. Of particular importance to the speed at which the ECB will exit emergency mode, Christine Lagarde stressed that inflationary pressures will be temporary – sticking to the global central banker script. At the April meeting she said tapering talk was premature. 

Kazaks and Lane made it clear policymakers will look at the asset purchase programme again in June, which could involve scaling back the programme if the economic situation is better.  There were dovish comments from the Panetta in late May, noting that it was too early to taper bond purchases. Banque de France Governor, Villeroy de Galhau, stressed that the ECB is going to be at least as slow to tighten as the Federal Reserve. 

But we’ve also had warnings about financial stability risks stemming from rising levels of sovereign debt. Vice president de Guindos warned of a “legacy of higher debt and weaker balance sheets which … could prompt sharp market corrections and financial stress”. 

Technical outlook 

Right now, the price action has flipped above the 5-day moving average (RHS), so we look for a confirmation of this move (close above today and a green candle again tomorrow) for a bullish signal. On the LHS, the longer-term view of the daily MACD divergence is raising a warning flag. 

US pre-mkt: Another wobble as US inflation surges to 13-year high

A Volcker-era inflation print: US inflation surged in April, with the year-over-year CPI reading coming in at 4.2%, the highest since Sep 2008 and easily beating the 3.6% expected. Prices rose 0.8% month-on-month, ahead of the 0.2% forecast. A 10% increase in used cars and trucks was the most eye-catching reading with sub-indices (see table below).

The gauge of core inflation made for even more interesting reading, at +0.9% mom and +3% yoy (see chart below). The mom reading was the highest since 1982 when Volcker was in full inflation-busting mode. We can look to lots of things like base effects, supply chain trouble, reopening, pent-up demand, stimulus effects etc as being behind this jump in pricing. Nevertheless, it’s happening; and this perfect storm for inflationary pressures is not about to go away immediately, even if it does, in the end, prove transitory. Yes, it’s predicted – albeit a little hotter than expected – but it’s still bound to stoke worries in the markets about inflation and rising nominal yields. Keep your eyes on the wage growth and job openings for the real inflationary pressure.

As we have noted previously, we can expect a series of hot prints this summer; the Fed has made it clear it will look past these as it thinks inflation will be transitory. We shall only really know if that is the case in a few months’ time. Until then expect gyrations as data shows strong inflation and growth, even if it’s largely predicted.

US CPI chart showing inflation spike.Table showing y-o-y CPI percentage increases.

Market reaction: Nasdaq futs predictably fell, benchmark 10-year yields rose to 1.65%. 10-year TIPS breakeven inflation rate rose to 2.591%, the highest since 2013. S&P 500 futs were weaker too but pared some losses ahead of the open. NDX set to open around 13,175, a wee bit above yesterday’s lows under 13,100. Vixx spiked above 23 before settling into the mid-22s.

The FTSE 100 tumbled to day lows at 6,950 on a broad algo-like reaction to the data before rallying to 7,000 again investors woke up and remembered that higher inflation is net good for the UK market since it’s weighted to cyclicals not tech. Strong inflation readings ought to support the UK blue chip index. The dollar caught some bid initially, with DXY spiking to 90.67 on higher yields before giving them all back in short order to sit around 90.30 at pixel time.

Cluster of indices charts showing reactions to US inflation spike.

EURUSD moved in a wide range on the release and is now trending to the upside.

EUR/USD chart from 12th May 2021.

UK preliminary GDP q/q preview (Wed, 07:00 BST)

The Bank of England anticipates UK economic output contracted by 1.5% in the first quarter of the year, which should be pretty much our reference point for the print on Wednesday, with the consensus at –1.6%. The –2.2% in January was stronger than expected and was followed by a 0.4% expansion in February. Whilst March data does not capture the reopening of non-essential shops, there is evidence that spending and activity were already picking up before the Apr 12th easing of lockdown restrictions. Moreover, the UK economy has proved to be a lot more resilient to lockdown 3 than lockdown 1. Put that down to the adjustment of people and business to the displacement; for instance the embrace of remote working, as well the lockdown rules themselves being less restrictive to economic activity than the first lockdown a year before. Better and more comprehensive testing has also played an important part in keeping in most economic activity going.

The March IHS Markit / CIPS services PMI showed a strong rebound in March, with the index rising to 56.3 from 49.5 in Feb. The robust PMI coupled with other evidence of increased card spending and mobility suggest a solid bounce back in the final month of the quarter, with a month-on-month expansion of around 1.3% expected. Whilst not a direct read on the Q1 numbers, Barclays today says that April card spending has exceeded pre-pandemic levels.

But this all remains rear-view fare: the market is more interested in the +7% growth expected in 2021 which is going to imply some pretty impressive expansion in the third and fourth quarters in particular. Strongest expansion since WW2 is more eye-catching than a mild contraction in Q1 that has been well and truly priced. Going forward, we are not really going to know what the true size of the economy really is for some time because there has been a huge displacement in economic activity as well as the velocity of people. Adjusting to this new normal will take time and measures of output will always lag what is really happening. Moreover, as Friday’s nonfarm payrolls report in the US evinces, hard data is liable to being way off forecasts because it’s so hard to get a handle on what we are comparing it with; furlough and other emergency schemes masked the true depth of the economic contraction. Just as the pandemic led to an unprecedented contraction, there is not really a playbook for this recovery, so we should be careful not to over-read individual prints.

By way of context, the NIESR this morning estimates that the UK economy will recover 2019 levels by the end of 2022. The recovery is strong but it’s coming from a low base. To add further context, as of Feb the British economy remains 7.8% smaller than it was a year before. Moreover, it is still 3.1% below where it was at the peak of the post-lockdown recovery in October 2020 – evidence that this long third lockdown over the first quarter has set things back some way. NIESR also estimates that UK unemployment will peak at 6.5% rather than 7.5%, reflecting the extent to which government support schemes have masked what is really going on.

Chart showing UK GDP performance.

BoE quick take: sterling hits one-week high as MPC exits emergency mode

This was not as hawkish as some might have wanted but it’s a clear signal the Bank of England is exiting emergency mode.

The Bank of England left interest rates on hold at 0.1% and maintained the size of its asset purchase programme at a total of £895bn. By way of a hawkish parting shot Andy Haldane dissented and voted to lower the gilt purchase envelope from £875bn to £825bn. His views are no longer particularly relevant to future monetary policy decisions since he is leaving after the June meeting, but it certainly underlines the fact that the Bank is exiting the emergency phase. Unless there is another deadly wave and new lockdowns the next move on rates will be up.

Whipsaw: Sterling spiked lower on the release, with GBPUSD dropping under 1.3870 from a high above 1.3920 earlier this morning before reversing course and hitting fresh daily highs north of 1.3940, since Apr 30th. Looks as though the slowing of bond purchases to a weekly rate of £3.4bn from £4.4bn amounts to a taper, but it appears to be not much more than the kind of technical taper that had already been flagged in February. Gilt yields are steady with the 10-year at 0.82% and 2-year around 0.050%. The FTSE barely budged and is steady above the all-important 7040 area, though back down from the highs of the day closer to 7070.

The Bank stressed the decision to ‘somewhat’ slow purchases is an ‘operational decision’ and ‘should not be interpreted as a change in the stance of monetary policy’. This is up for debate – it at least signals the Bank’s confidence in the economic recovery, otherwise it would keep on at the higher rate and stand ready to increase the size of the envelope. But we also must acknowledge that it’s really about creating an gentler run-off for QE than might otherwise be required later in the year to avoid exceeding the envelope. On the whole it looks as though the FX market doesn’t see this as particularly hawkish with cable failing to make good on the breach of 1.3940 and settling back to around 1.3920.

The growth outlook is much improved this year with the Bank forecasting growth down a little in Q1 and then a sharp recovery in the second quarter, though activity will remain about 5% below the same period in 2019. The economy is expected to recover to pre-pandemic levels over the course of 2021, however GDP growth is seen cooling over the rest of the forecast period. The MPC also stressed that the outlook for the economy remains ‘uncertain’. The bank reiterated that spare capacity in the economy is expected to be eliminated in 2021 and there is a temporary period of excess demand, before demand and supply return broadly to balance.

Pull-forward in demand: The Bank revised 2021 growth up to 7.25% from 5% in the February Monetary Policy Report, but revised growth for 2022 down to +5.75% in 2022 from a previous forecast of 7.25%. The impact of the vaccine rollout is clear to see from this. 2023 forecast remains at +1.25%. Inflation is forecast to return to 2% in the medium term, and hitting 2.3% in a year’s time. Overall it looks like the Bank sees inflation staying well under control over the forecast period, which does not indicate it will be in a hurry to raise interest rates.

Whipsaw move sees GBPUSD hit its highest since end of April before easing back to be almost flat on the session.

Chart showing GBP response to BoE rate decision.

FX primer: A big week ahead for the pound?

• Scottish election: breakup risks?
• Bank of England meeting
• Sterling struggling to recapture 1.40

Scotland’s elections on May 6th combined with a Bank of England (BoE) meeting create a good deal of event risk for sterling crosses, gilts and UK equities next week.

First to the elections, where results will be closely watched by the FX markets for a signal on a possible second independence referendum. Whilst Boris Johnson has been clear on not allowing another referendum in this Parliament, strong SNP support would be considered by Nationalists are a firm vote of confidence and would create impetus behind calls for Indyref2. First minister Nicola Sturgeon says a majority of pro-independence MSPs, which would include SNP, Greens and perhaps any new Alba MSPs, would deliver a mandate for another referendum. I do not want to get into the weeds of polling figures and the permutations of the Scottish regional list ballot system; however, it is worth a quick look at the latest figures.

A Panelbase survey suggests the SNP will fall short of an absolute majority, but pro-independence MSPs would have a majority in Holyrood. The survey points to 61 SNP MSPs (down two from 2016), 24 Conservatives (down seven), 20 Labour (down four), Greens 11 (up five), eight for Alex Salmond’s Alba and five for the Liberal Democrats. A poll by Survation predicted that the SNP is on course to win a five-seat majority. Based on this assumption, and an expected strong showing for nationalists (be they Green, SNP or Alba), it’s likely Nicola Sturgeon will remain as first minister and there will be renewed calls for independence.

Since the Brexit vote and subsequent agreement (now finally ratified), the case for independence has taken on a new tone. Scotland, argue the nationalists, voted to remain in the EU. The 2014 once-in-a-generation vote is irrelevant since things have changed within the UK, they say. Scots said no to independence believing they’d stay in the EU. Such constitutional grumblings are of course non-sensical; Scots voted to remain part of the UK, the UK then voted to leave the EU: that’s life. It’s not a buffet. I daresay my corner of the Chilterns voted to remain, but it is an irrelevance.

Putting all of this to one side, as far as markets are concerned the election in Scotland is ‘one to watch’. UK break-up risks could be a factor in holding sterling back right now. A victory for nationalists could create further unease and is certainly one to watch for GBP crosses in the coming days. However, given the British government’s position, I see no actual risk of a breakup of the UK in this Parliament. Longer-term, Scottish nationalism will continue to act as a headwind to sterling.

Then we have the Bank of England meeting, also on May 6th. Don’t expect any change to monetary policy, however the much brighter economic outlook certainly points to the Bank being able to wind down emergency mode earlier. With QE running at a pace of slightly more than £4bn in gilt purchases weekly, the focus will be on at what point the MPC chooses to signal it will slow this down later this year. The contraction in GDP in the first quarter was not as bad as feared as the economy showed far greater resilience to lockdown 3 than lockdown 1, whilst the success of vaccinations is becoming abundantly clear and means lifting of all restrictions by June 21st is looking more and more likely. The vast majority of economic activity will ‘normalised’ by May 17th. Therefore, there is a risk that the Bank announces plans to taper asset purchases at this meeting, sooner than the market is maybe anticipating. This would likely be positive for sterling since FX markets continue to under-price MPC hawkishness.

The Bank forecast a 4% decline in Q1 (quarter-on-quarter), however the data so far indicates that the contraction was milder than the February projection. Growth estimates for the full year may well be revised higher from the current 5% level. This may provide ammunition for an earlier taper, however the MPC may prefer to wait longer (say June, when the extent of the reopening will be better appreciated) in order to engineer a steeper taper in the second half of the year.

Markets are currently pricing a small hike this year, and 50 basis points over the three years of the BoE’s forecast horizon. While all the chatter was about negative rates, it has become clear that the next move by the MPC will be to raise rates, unless of course we get another exogenous shock.

Ahead of next week’s meeting we have seen some mild tightening as 10yr gilt yields crept higher and we could see tightening further before or around the meeting in anticipation that the BoE does not seek to push back against those market expectations. Teeing up a taper could see the yield on the 10-year gilt rise back to the March peak at 0.87%, which would be sterling positive. Ultimately the question about tightening is really one of timing, but the BoE cannot be blind to the economic data and this meeting could be the time to fire the starting pistol.

GBPUSD has resolutely refused to break out of the week’s range and mount any attempt to scale 1.40. Price action has centred on the 38.2% retracement area at 1.3890. With little appetite to take on 1.40 for now we could see a retest of 1.3860 in the near-term, with a drift to 1.380 and the 23.6% retracement a possible area to look at on a dip. Scottish risks may be put to one side by traders focused on the here-and-now of gilt yields and potential tightening into the BoE, helping to create the conditions for another attempt to clear the big round number. Bullish crossover on the hourly MACD is useful. On the daily chart the bullish crossover from two weeks ago is still in play but momentum keeps fading at the 1.39240 area this week. (daily on the left, hourly on the right).

Chart showing GBP movement against USD.

Cable hits 6-week low

Looks to be a pretty soggy morning for risk as sterling slipped to its weakest since the start of February, whilst the dollar is bid, shares slipped, oil fell and bond yields retreated ahead of the Congressional testimony of Fed chair Jay Powell and Treasury Secretary Janet Yellen. We kind of know where the Fed is at in terms of yields, inflation and accommodation. We will want to hear a lot more about what Yellen says on additional stimulus, with Biden’s mooted $3tn plan in the offing. FTSE 100 trades around 6,700 by 10am, down -0.3%, with the DAX -0.5% for the session. US futures still lower, Vix nudging up. US 10s are lower at 1.644% and copper is weaker by more than 1% and WTI futures dropped over 3% back under $60.

GBPUSD sank to a 6-week low as the 50-day simple moving average went at 1.382 and then the round number broke to see the cross test 1.3770. Looking at the 78.6% retracement around 1.3750 for support. I’d still be confident the pound will be retest 1.40 and break above that when it does.

GBPUSD has sunk to a 6-week low.

The dollar is finding bid across the board this morning, with EURUSD dropping 30pips or so in the last 3 hours to under 1.19, with a potential retest of yesterday’s lows around the 1.1875 area. Key 200-day SMA coming in around 1.1850.

EURUSD dropping 30pips or so in the last 3 hours to under 1.19.

WTI futures looking to the downside today as risk is offered and markets fret over the rise in cases in Europe and a shorter holiday summer season. As flagged in today’s morning call briefing the potential bearish wedge has already broken down, looking to the 50day SMA around $58.80.

WTI futures looking to the downside today.

Old Lady lights a fire under Betty: Cable soars as next move on rates should be up

The Old Lady has lit something of a fire under sterling: The Bank of England left rates unchanged at the record low 0.1% and the stock of asset purchases steady at £895bn. There was no surprise in either as the Bank has plenty of ammo left in the tin in terms of QE and any thoughts about negative rates are premature to say the least. Indeed I would say that this latest update indicates the next move on rates will be to hike when the recovery takes hold and inflation picks up as spare capacity is eliminated – perhaps not soon but the direction of travel is surely away from negative rates and towards hiking, perhaps in 2022.  Sterling and gilt yields responded by shooting higher, with 2-year yields jumping from -0.1% to -0.05%.

 

We got a confident outlook too – the Old Lady thinks the UK economy will recover quickly to pre-pandemic levels of output over the course of 2021. It expects spare capacity in the economy to be eliminated as the recover picks up steam this year, which begs the question: is the next move up? I think so, although clearly the Bank is at pains to leave negative rates in the toolkit.  

 

Key passage: GDP is projected to recover rapidly towards pre-Covid levels over 2021, as the vaccination programme is assumed to lead to an easing of Covid-related restrictions and people’s health concerns. Projected activity is also supported by the substantial fiscal and monetary policy actions already announced. Further out, the pace of GDP growth slows as the boost from these factors fades. Spare capacity in the economy is eliminated as activity picks up during 2021.”

 

It also stressed that the GDP performance in Q4 was “materially stronger” than it thought in Nov. The thing is lockdowns #2 and #3 are not as economically damaging as mark 1. However 2021 gets off to a slow start – GDP is expected to fall by around 4% in 2021 Q1, in contrast to expectations of a rise in the November Report. This is no surprise since lockdowns are lasting much longer than we thought they would back then. But the important thing is the rapid elimination of spare capacity this year. 

 

Not only did the BoE say that it does not intend to signal that negative rates are coming, but it also – from my reading of the Monetary Policy Report – suggest that the next move on rates will be to hike. If spare capacity is eliminated this year and inflation progresses to target there will be a move to raise rates. The MPC itself stated: “The Committee does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.”

 

But on the face of things, it seems we will see inflation pick up (PMIs are telling us this), whilst oil prices are rising, Brexit will raise some costs inevitably, and pro-cyclical stimulus and vaccines will create a strong tailwind to growth this year. The rapid rollout of vaccines cannot be underestimated as far as inflation goes and the MPC reckons CPI is expected to rise quite sharply towards the 2% target in the spring, and hit 2.5% in 2022. This may be far too conservative. Coupled with a strong economic recovery may present the MPC with a dilemma about when it needs to tighten policy. It could be sooner than expected – it all depends on the vaccines of course so we should treat this with caution.

 

Sterling liked the MPC taking a bit of step back from the negative rate precipice. GBPUSD advanced to the 50-hour SMA at 1.36470 and reversed the near-term momentum to the downside.

Cable hits YTD high, OPEC decision coming

Sterling rose to its highest against the US dollar in 2020 with the greenback coming under more pressure this afternoon in a repeat of yesterday’s moves as the weaker dollar narrative shows no signs of running out of gas. GBPUSD advanced beyond 1.3490, its best since the Boris Bounce of Dec 2019 after the Conservatives won a strong majority and a run at 1.35 seems ‘on’ for bulls now.

That would see cable back to levels not seen since the soft Brexit narrative-driven 1.43 area of spring 2018. The moves are probably two-fold – one is clearly about dollar weakness with majors posting solid gains vs the buck. The other cause may be markets front-running a Brexit deal with indicators the UK and EU negotiators are heading towards the ‘big push’. Don’t worry lads, we’ll be eating sauerkraut in Berlin by Christmas…we know what overplaying Brexit headlines has been like but it feels like this time is different simply because we are running out of road.

EURUSD has risen to its strongest in over two and a half years, rising above 1.2170. As noted when we saw 1.20 breached, there is not a huge amount of resistance blocking a return to 1.25. USDJPY dipped under 103.70, its lowest since the Nov 6th low which preceded the massive Nov 9th rally. Dollar index making new lows as a result with pressure on all fronts taking it to some near-term support at 909.50. Little support through to 88.

Cable has hit a YTD high today.

Meanwhile, a word on OPEC – as of send time the meeting had begun with sources pointing to increase production slowly at a rate of 500k bpd from next year, either from Jan or Feb. WTI seems happy enough with $45 on the headlines but we await the final decision.

 

Gilts, sterling shrug off Spending Review

Not a lot ultimately to get markets too excited, in fact markets took the Spending Review in their stride. Gilt markets shrugged off the Chancellor’s set-piece despite a massive splurge in borrowing that produced some heady numbers that really we have never seen before in this country – it’s fair to say the bond vigilantes are conspicuous by their absence these days.

The UK is forecast to borrow a total of £394bn this year, which is equivalent to 19% of GDP and a record amount. No mention of the inevitable tax raid that is coming…but it is undoubtedly is coming. The Bank of England has foursquare got the government’s back these days (not quite outright financing but as good as) and the global bond market is so squashed by central banks that these eyewatering borrowing numbers can be shrugged off by the market.

UK 2-year gilts were down at -0.039% and 10-year yields at 0.307%. Yields are actually lower on the day, which is probably due lack of momentum today in the reflation trade (n.b. pro-cyclical equity rotation without reflation has been killer for gold but as per prev. notes the inflation will start to show in CPI prints in US and lead gold higher), and the curve remains negative out to four years with real rates still deeply negative.

GBPUSD moved a little lower to 1.3340 area but bounced on this support and the pair remains well off the day’s lows. US data crossing showing higher-than-expected initial and continuing jobless claims whipped the cross back to 1.3360 at the bottom of the hour before coming down. US durable goods were strong at +1.3% vs 1% expected, with core durable goods at 1.3% vs 0.5% expected.

The package unearths some very substantial near-term problems for the UK economy. The economy will contract by 11.3% this year and growth next year has been slashed to just 5.5% from 8.7% expected in July. Economic output will not return to pre-pandemic levels until the end of 2022. Unemployment will rise to 7.5% in Q2 2021 – it’s always darkest before the dawn. Vaccines emerging in the second half of next year will start to see this trend reverse, it is hoped.

Elsewhere ahead of the US open the Dow is set to open 40-50pts lower at a whisker under 30,000. FTSE 100 also steady at -0.6% just under 6,400.

Chart: GBPUSD not fussed much

GBP is not too fussed about the UK Chancellor's major borrowing plans.

ECB: Pandemic focus

With the euro gaining ground again versus the US dollar, attention in the FX markets will be on the European Central Bank (ECB) meeting on Thursday.

Market participants are increasingly betting on the ECB carrying out further easing in a bid to boost faltering economic growth and stagnant prices.

The Eurozone slid into its second straight month of deflation in September and with further lockdowns being imposed across the bloc, the risks to the economic outlook have clearly deteriorated since the last meeting and the assumptions for growth contained in the ECB’s September look out of step with reality.

Weakness in Friday’s PMIs highlight the concern among businesses, particularly in services. The threat of a double dip recession is real, and Christine Lagarde recently commented that the resurgence of the virus is a clear risk to the economy.

Given the murky outlook and dreadful inflation backdrop it seems all but certain the ECB will increase its bond buying programme by another €500bn by December – albeit it may choose to increase PSPP rather than PEPP – for the markets these acronyms won’t matter too much – it’s the size and duration of the liquidity injection that matters, not how it is presented.

Lagarde may drop some hints in the press conference to increasing PSPP/PEPP envelopes in December, but will not over-commit. Moreover, with progress on delivering on the fiscal side slow, the ECB will feel obligated to step up.

To get a flavour of the mood in the ECB, the usually hawkish Austrian central bank head Robert Holzmann said recently: “More durable, extensive or strict containment measures will likely require more monetary and fiscal accommodation in the short run.”

As far as the currency goes (why else are we bothering?), the line in the sand for the central bank was 1.20 on EURUSD – a level that prompted chief economist Philip Lane to comment that “the euro-dollar rate does matter”.

Traders should pay attention to any nod to currency worries from Christine Lagarde – another run at 1.20 looks credible, particularly if there is a Democrat clean sweep in November’s elections as this is seen as a headwind for the dollar and likely positive for the euro due to better trade relations.

Fundamentally it will be more of the same from the ECB with it stressing it is ready to do more and the momentum is with the doves to ease more.

Meanwhile, there are also meetings of the Bank of Japan and Bank of Canada taking place this week.

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