ECB: move on folks, there is nothing to see here - Westpac

An analyst at Westpac, Tim Riddell, summed up the ECB meeting today and explained that the ECB has achieved a successful first step towards its goal of gradual and cautious change to its forward guidance without impacting markets.

Key Quotes:

• ECB drops downside risks but clearly underscored a neutral stance
• There was, as expected, no change to ECB benchmark rates or their APP path
• Scope remains to cut rates if conditions falter underscores the ECB's neutral stance
• Official rates will remain at their low levels well beyond the current APP
• On a day with increased concerns over market risk in Europe due to the UK general election, Comey's testimony and the potential of a shift in ECB guidance, this last risk turned out to be remarkably contained. 

"If there was anything to extract from today’s ECB statement (which was really as market commentators had expected) and their Press conference, it was that Draghi had effectively cut out any risk that there might have been a perception of an internal dispute. 
Draghi made it clear that there was no vote and that there was no dissent on the current stance and guidance. He also made it clear that there was no discussion within the governing council over QE or normalisation even though it was commented upon “by two members”.

Of interest for markets were the changes to ECB staff projections. Although growth was edged up, exactly as intimated by “sources” yesterday, the pullback in CPI projections has been larger than those same “sources” intimated. Additionally, within the Press conference, Draghi suggested that firm Eurozone data would likely push 2017 GDP growth to 2.0%."

When asked about employment and wage inflation, Draghi pointed out how effective QE and their policies had been in allowing employment growth but that some of this had been in low-quality labour. This underscored again the recent ECB bulletin special report on labour markets within the Eurozone which highlighted persistent slack despite the declines in unemployment that the region has seen.

The impacts on the rates market and EUR have been remarkably limited. EUR dipped a mere 10-20 pips, yields, which were slipping beforehand, barely moved, though stocks did give back some of their gains."