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While the ECB will be released new staff economic projections (SEPs) due on Thursday, the scope for the ECB to act at this meeting, one way or the other, seems very limited. Primarily, this is due to upcoming political risk, with Dutch elections next Wednesday, and French presidential elections in April and May.
To be fair, economic data has been improving steadily in recent weeks, beyond consensus expectations by a wide margin. The Euro-Zone Citi Economic Surprise Index finished last week at +70.0, up from +55.9 a month earlier. On the other hand, despite the German and Euro-Zone CPIs running through +2%, the 5-year, 5-year inflation swap forwards, one of President Draghi’s favorite measures of inflation, have slipped back the past month, finishing at 1.705% at the end of last week from 1.774% four-weeks ago.
ECB President Mario Draghi is likely to balance out his optimism over near-term economic data against longer-term concerns about the political scene in Europe and inflation that has just started to show signs of life near their medium-term target. Similarly, it seems likely that he’ll downplay the ECB’s faith that inflation is returning in a meaningful way, so as to not spook markets into thinking that the ECB will be withdrawing liquidity at a faster than expected pace; the ECB’s ‘taper’ will still amount to over half-a-trillion worth of European sovereign debt purchased through the end of the year.
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