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10 Dec 2014
TLTRO2 unlikely to derail sovereign QE - Nomura
FXStreet (Bali) - Nomura expects a gross allotment of €177bn (net around €90bn), with downside risks, adding that TLTRO2 is unlikely to derail sovereign QE, more a matter or 'when' not 'if'.
Key Quotes
"Last week‟s dovish ECB meeting and our NORI forecast that euro area HICP inflation will hit negative territory in December increase our confidence that the ECB is closer to announcing sovereign QE in Q1 2015 (by 5 March at the latest; 90% probability), with a 60% probability of an announcement at the January meeting, as per Zero tolerance to low inflation to trigger ECB Sovereign QE on 22 January, 4 December)."
"However, as we expect the discussion on the Governing Council to increasingly focus on “when” (and “how”) to do sovereign QE, this week‟s second TLTRO will be important and significant for influencing the debate on the timing of a sovereign QE programme and determining the strength of the hawkish hold-out position."
"We continue to forecast a gross allotment in TLTRO2 of €177bn (net liquidity injection of around €90bn), with downside risks. Even though our TLTRO2 forecast is now above consensus (Bloomberg €148bn; Reuters €130bn), we do not envisage any take-up that would alter our view with respect to the ECB being able to deliver on its balance sheet “intention” at a sufficient pace in view of the macroeconomic backdrop the ECB is now confronted with (nb: the TLTRO programme was announced and calibrated based on the outlook in Q2 2014). We therefore emphasise the significance of the TLTRO more in terms of its potential impact on a sovereign QE decision given the small net impact relative to what the ECB needs to do with respect to its balance sheet expansion."
Key Quotes
"Last week‟s dovish ECB meeting and our NORI forecast that euro area HICP inflation will hit negative territory in December increase our confidence that the ECB is closer to announcing sovereign QE in Q1 2015 (by 5 March at the latest; 90% probability), with a 60% probability of an announcement at the January meeting, as per Zero tolerance to low inflation to trigger ECB Sovereign QE on 22 January, 4 December)."
"However, as we expect the discussion on the Governing Council to increasingly focus on “when” (and “how”) to do sovereign QE, this week‟s second TLTRO will be important and significant for influencing the debate on the timing of a sovereign QE programme and determining the strength of the hawkish hold-out position."
"We continue to forecast a gross allotment in TLTRO2 of €177bn (net liquidity injection of around €90bn), with downside risks. Even though our TLTRO2 forecast is now above consensus (Bloomberg €148bn; Reuters €130bn), we do not envisage any take-up that would alter our view with respect to the ECB being able to deliver on its balance sheet “intention” at a sufficient pace in view of the macroeconomic backdrop the ECB is now confronted with (nb: the TLTRO programme was announced and calibrated based on the outlook in Q2 2014). We therefore emphasise the significance of the TLTRO more in terms of its potential impact on a sovereign QE decision given the small net impact relative to what the ECB needs to do with respect to its balance sheet expansion."