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14 Apr 2015
Euro area yields to remain depressed – GS
FXStreet (Barcelona) - The Goldman Sachs Team expects Draghi to reiterate the need for the full implementation of QE in the ECB policy meeting, which implies that the flow arguments will keep Eurozone yields depressed.
Key Quotes
“Our economists expect that the Governing Council will acknowledge the sustained improvement in both hard data on economic activity (our Euro area Current Activity Indicator shows that Real GDP is expanding at a 1.5%-2.0% annualized rate) and soft data from confidence indicators (the Economic Sentiment Indicator from the European Commission March reading of 103.9 is at its highest level since 2011). In spite of this material improvement, we believe that the overall message will be cautious on the outlook for growth and prices.”
“A better macroeconomic picture, alongside the rally in core European bonds and concerns about potential scarcity of bonds in some markets have triggered speculation the ECB could moderate the pace of bond purchases in the future”
“We are of the view that President Draghi will reiterate the need for a full implementation of the asset purchase program ‘at least until next September’ as a pre-condition for lifting inflation and getting the market to price a more symmetric balance of risk around the 2% target.”
“For these reasons, we expect that in the near term technical and flow arguments will continue to trump macroeconomic factors, keeping Euro area core yields depressed.”
“As the macro improves and headline inflation starts printing higher from the Summer, we think the ‘core’ Euro area yield curve will steepen back.”
Key Quotes
“Our economists expect that the Governing Council will acknowledge the sustained improvement in both hard data on economic activity (our Euro area Current Activity Indicator shows that Real GDP is expanding at a 1.5%-2.0% annualized rate) and soft data from confidence indicators (the Economic Sentiment Indicator from the European Commission March reading of 103.9 is at its highest level since 2011). In spite of this material improvement, we believe that the overall message will be cautious on the outlook for growth and prices.”
“A better macroeconomic picture, alongside the rally in core European bonds and concerns about potential scarcity of bonds in some markets have triggered speculation the ECB could moderate the pace of bond purchases in the future”
“We are of the view that President Draghi will reiterate the need for a full implementation of the asset purchase program ‘at least until next September’ as a pre-condition for lifting inflation and getting the market to price a more symmetric balance of risk around the 2% target.”
“For these reasons, we expect that in the near term technical and flow arguments will continue to trump macroeconomic factors, keeping Euro area core yields depressed.”
“As the macro improves and headline inflation starts printing higher from the Summer, we think the ‘core’ Euro area yield curve will steepen back.”