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ECB tapers PEPP but Lagarde will maintain dovish tone

Fawad Razaqzada Fawad Razaqzada 09/09/2021
ECB tapers PEPP but Lagarde will maintain dovish tone ECB tapers PEPP but Lagarde will maintain dovish tone
ECB tapers PEPP but Lagarde will maintain dovish tone Fawad Razaqzada
As expected, the ECB has kept its policy unchanged, but it has decided to “moderately” lower the pace of net asset purchases under the PEPP compared to the previous two quarters. This means that the difference is only going to be marginal and it something that is already priced in. The rest of the message from the policy statement was quite dovish, allowing the European indices to make further ground after they had already bounced off their lows prior to the release of the policy statement. Attention will be on Christine Lagarde’s press conference at 13:30 London time. Will Lagarde appear a little more hawkish in light of the taper and improvement in Eurozone data and pickup in inflation, or try to convince the markets that reduced PEPP flows is nothing to worry about it and that it could be reversed?
 
According to the ECB:

"Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council judges that favourable financing conditions can be maintained with a moderately lower pace of net asset purchases under the PEPP than in the previous two quarters"
 
“The Governing Council will continue to conduct net asset purchases under the PEPP with a total envelope of €1,850 billion until at least the end of March 2022 and, in any case, until it judges that the coronavirus crisis phase is over.”
 

Meanwhile, APP will continue at €20bn a month...

 “for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates.”
 
The ECB press conference could provide fresh impetus for European stocks and the single currency. Lagarde’s tone will be scrutinized very closely by the markets, and if she says anything that is slightly different to her previous dovish remarks then the euro could make a more decisive move higher, while European stocks will probably show a mild reaction as they had already weakened in advance of the meeting.
 
The key challenge for Lagarde is to prevent bond yields from rising sharply, so she will need to convince investors that the reduction of purchases under the ECB’s emergency stimulus will not impact the economic recovery. Judging by her previous speeches and conferences, I can’t see why she would change her tone significantly.
 
For that reason, we could see the DAX stage a more significant recovery and it could potentially make a move towards its previous high. However, with the trend line since March 2020 broken, the bulls might want to proceed with extra care until that trend line is re-claimed, ideally on a daily closing basis.
 
DAXSource: ThinkMarkets and TradingView.com
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Fawad Razaqzada
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Fawad Razaqzada
Market Analyst, London

Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms. He leverages years of market knowledge to provide retail and professional traders worldwide with succinct fundamental & technical analysis. Fawad also offers trading education to help shorten the learning curves of developing traders.
 
His colleagues consider him an expert at reading price action on the charts. This together with his deep understanding of economics and fundamental analysis, and trading experience, puts him in a great position to forecast short term price movements. Fawad covers a wide range of markets, including FX, commodities, stock indices and cryptocurrencies and his comments are regularly quoted by the leading financial publications such as Reuters and Market Watch. In addition to ThinkMarkets, Fawad also provides analysis and premium trade signals on his own website at TradingCandles.com.
 
 

Carl Capolingua
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Carl Capolingua
Market Analyst, Melbourne

Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

Kearabilwe
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Kearabilwe Nonyana
Market Analyst, South Africa

Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives. His career in the financial markets has seen him hold various positions in global investment banks and global CFD and Spread betting firms. He has deep interest in using quantitative methods to help him understand and teach the fundamental drivers of asset prices.
 
 
 

Fawad Razaqzada
Fawad Razaqzada
Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms.
Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.
Kearabilwe
Kearabilwe Nonyana
Kearabilwe is an experienced Sales trader and Analyst specialising in Equity and Equity derivatives.

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