Nordea Markets analysts suggest that from a market perspective, the January ECB meeting is unlikely to be among the most eventful ones.
Key Quotes
“Large immediate market reactions thus do not look likely. However, given the recent more positive market tone, we see risks tilted towards a slightly hawkish market reaction in response to next week’s message. In this environment, markets could pay most attention to the comments talking about a tentative stabilization of economic data and some removal of downside risks – which in other words would mean less need for immediate easing.”
“Given that the market has already largely given up pricing further interest rate reductions, while the ECB’s continued easing bias should limit the room to price in much risk of rate hikes over the next 12 months, longer yields probably have more room to rise than the short end of the curve.”
“Beyond the short-term horizon, we do expect yields to move back lower over the coming months, as the economy is far from being out of the woods. Unless the ECB further raises the bar on more easing measures, for example by emphasising the adverse effects of negative rates, weak data should still persuade markets to price in higher risks of more easing ahead.”
“On the FX front, we do not expect the EUR to receive much lasting support from the ECB, as the bar for the market to price in any notable ECB tightening remains high.”
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