Investors are watching the latest developments with growing apprehension with fears that a slowdown in global economic growth will materialize as central banks gradually begin to withdraw support from monetary policy. What is alarming are the growing contagions dictated by the Delta variant in the US that could slow down growth. At the same time, the strong inflationary pressures are inducing the main central banks to evaluate the beginning of the withdrawal of monetary stimuli.
The Euro Stoxx 600 index slips to three-week lows. At Piazza Affari, the Ftse Mib reaches 25,652 points (-0.87%).
It is the day of the ECB
In the meantime, the ECB rate decision dominates today, with high inflation (reached its highest levels since 2013 in August) which greatly increases the pressure on Christine Lagarde to take action. In recent weeks, several Eurotower officials have expressed their support for a gradual reduction of the PEPP pandemic plan. The Governor of the French central bank, Villeroy de Galhau, alluded to a possible slowdown in PEPP purchases in the fourth quarter. Even the Austrian Governor Holzman, a hawk, has expressed himself in favor of this solution.
What to expect from today’s meeting
The consensus for today is of no substantial change in monetary policy, the only substantial change should be the removal in the statement of the reference to the commitment to lead the Pepp at a pace significantly above the first quarter of 2021. The strategists of Mps Capital Services believe that the discussion instead of whether to terminate or extend the expiry of the PEPP (expected in March 2022) it will be a topic that will probably be dealt with in the two meetings that remain between now and the end of the year.
According to a Reuters poll, the ECB is expected to slow bond buying through its Pandemic Emergency Purchase Program (PEPP), but also reassure markets that this is not the beginning of a gradual exit from easy politics.
“The expectation is that the pace of bond buying in the fourth quarter will slow down,” confirms Pail Donovan, chief economist at UBS Global Wealth Management. “Quantitative policy has been more of an antidepressant than a stimulus – argues Donovan – combining the increase in demand for liquidity linked to the saving of the pandemic with an increase in the supply of liquidity. As the demand for liquidity is slowing down, the supply of liquidity may slow down ”.
The central bank will release the new growth and inflation estimates. One is possible upward revision for 2021 and 2022.