The latest European Central Bank (ECB) policy meeting turned out as we expected. The policymakers kept interest rates unchanged and the meeting ended on an overall neutral tone. The ECB's interest rate on its main refinancing operations and the marginal lending facility and deposit facility will remain unchanged at 0%, 0.25% and -0.40% respectively.

We noted Draghi’s comments that the significant monetary stimulus is still needed to support price pressure in the EU economy. We are of the view that the overall macro-fundamental remains largely unchanged. On that note, we foresee price pressure growing at a gradual pace. Besides, with the cheaper euro, higher crude oil price and tightening of the labour market amid growing wages, we believe the underlying inflation will gather some steam. Hence, while we highly anticipate the bond-buying programme to end this year, we expect the ECB to raise rates in either July or September 2019, with much depending on the ongoing trade negotiation between the US and EU and domestic price pressure.

• The latest European Central Bank (ECB) policy meeting turned out as we expected. The policymakers kept interest rates unchanged and the meeting ended on an overall neutral tone. The ECB's interest rate on its main refinancing operations and the marginal lending facility and deposit facility will remain unchanged at 0%, 0.25% and -0.40% respectively.

• We that noticed although the ECB viewed positively the latest developments in trans-Atlantic trade relationship with both the US and EU agreeing to work towards “zero tariffs”, ECB president Draghi cited “too early to access the actual content”, suggesting the ECB's cautiousness should a shift in tide occurs. We also remain cautious on the latest development given US Secretary of Commerce Wilbur Ross continuing to probe into the auto industry as long as there isn’t a hiccup on the ongoing negotiations.

• Meanwhile, we noted Draghi’s comments that the significant monetary stimulus is still needed to support price pressure in the EU economy. We are of the view that the overall macro-fundamental remains largely unchanged but sentiments eased recently due to the trade war noises. At the same time, we noticed M3 growth has rebounded and growing at accelerated pace of 4.4% y/y in June and loans in the non-financial sector has been upwardly trending, up 1.3% y/y in June. But we remain slightly cautious on the trajectory of household loans as the growth has moderated in 1H2018, up 2.51% as compared to 2017’s 3.06%.

• On that note, we foresee price pressure growing at a gradual pace. Besides, with the cheaper euro, higher crude oil price and tightening of the labour market amid growing wages, we believe the underlying inflation will gather some steam. Hence, while we highly anticipate the bond-buying programme to end this year, we expect the ECB to raise rates in either July or September 2019, with much depending on the ongoing trade negotiation between the US and EU and domestic price pressure.

Source: AmInvest Research - 27 Jul 2018