Market eyes September for ECB details on tapering

The market expects the ECB to deliver a tapering announcement in September as president Mario Draghi delivers a “well-choreographed” attempt to make sure his recent more hawkish stance doesn’t spook markets.

The ECB governing council left rates and its €60bn-a-month asset purchase programme unchanged in today’s decision.

Aberdeen Asset Management senior investment manager Patrick O’Donnell says Draghi stressed financial conditions were supportive of high inflation, effectively endorsing the rise in bond yields and the appreciation in the euro.

“Yet he has stopped short of actually doing anything material,” O’Donnell says.

“This is a well-choreographed attempt by Mr Draghi to make sure that financial markets don’t get ahead of themselves after his more hawkish comments of late.”

Draghi will likely give investors time to digest his “caveat laden hawkishness” before delivering something more concrete in September.

O’Donnell now eyes September for anything more significant out of the ECB, which is 

“We probably won’t hear anything significant out of the ECB until September, which is plenty of time for investors to digest Mr Draghi’s caveat laden hawkishness. Mr Draghi will be hoping that today’s performance is enough to give him a quiet summer.”

Bond Strategist at Investec Wealth & Investment Shilen Shah agrees there despite some hints that the ECB is likely to announce that a taper of its bond buying programme at its September press conference, Draghi kept his cards close to his chest.

“The market however continues to believe a Q1 2018 taper will be announced in September.”

Premier Global Alpha Growth fund manager Jake Robbins says bond yields are unlikely to spike after today’s meeting, but will drift higher as QE begins to be wound down.

“This is likely to be supportive for financials as they benefit from higher yields, and cyclicals such as industrials as the stronger economy boosts sales and margins.

“The favoured sectors of recent years, such as consumer staples, will probably suffer as income investors can generate better returns in the bond markets, and the relative growth rates of staples relative to cyclicals will look unattractive in an accelerating economy. Given that staples are valued at close to historic highs, this also adds to the risks of holding these assets.”

However, M&G fixed interest investment director Anthony Doyle says tapering of asset purchases, which he anticipates will be addressed at the September meeting, represents a reduction in the degree of monetary stimulus rather than a fast interest rate tightening cycle.

“In this type of environment, risk assets are likely to continue to be well supported provided the economy continues to expand and inflation remains close to the ECB’s target.”