CFDs are a leveraged product and can result in losses that exceed deposits. Please ensure you fully understand how CFDs work and what their risks are, and take care to manage your exposure. CFDs are a leveraged product and can result in losses that exceed deposits. Please ensure you fully understand how CFDs work and what their risks are, and take care to manage your exposure.

What to expect from this week’s ECB meeting

The European Central Bank is expected to bolster its stimulus programme this week, even as signs of recovery appear across Europe.

ECB meeting to take place amid economic shock

The European Central Bank (ECB) meeting this week takes place in a very different world from the last one. We have endured tens of thousands of deaths from coronavirus and an economic shock in Europe unlike anything since the Second World War.

Firstly, the bank will have to deal with the awkward topic of its growth forecasts. The March forecasts provided three scenarios, with gross domestic profit (GDP) dropping by 5%, 8% and 12% respectively for 2020. It is likely that the June meeting will see a forecast somewhere between the 8% and 12% drop. Beyond Q2 however, forecasts are even more of an exercise in guesswork than in normal times. Some countries are seeing solid rebounds in activity, to around 70%-80% of normal, while others lag with recoveries of 60%. As a result, we can expect forecasts to change sharply as the year goes on.

Inflation predictions are also difficult to make at this time. Widespread unemployment, falling energy prices and the closure of businesses does not augur well for higher prices, although some council members think supply disruptions will be among the key effects providing some upward lift to prices.

ECB needs to act fast

The ECB’s current PEPP (Pandemic Emergency Purchase Programme) will run out in October. Coupled with this is the German constitutional court ruling, which hovers like a cloud over ECB actions and may take the Bundesbank out of its stimulus programme.

As a result, the ECB needs to act fast, and will therefore choose to increase the size of the PEPP at this meeting instead of waiting to see how markets and the economy behave in Q2 and Q3.

This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.

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