According to Link analysts, Mr. Draghi will have to provide answers to the following questions:
1) The weakness that are recently showing some indicators of the European economy and the effect that the conflict in Ukraine could have on its recovery in the coming months.
2) The continued low inflation in the euro area and the risks of falling into deflation
3) the possibility that the ECB carries out finally large-scale asset purchases, known as quantitive easing program, and/or purchases of residential mortgage-backed securities.
Barclays analysts still think the bar for outright QE is quite high and the decision to buy EGBs would require renewed recession or outright deflation. “It will take until year-end to implement the June measures, and more unconventional measures are unlikely to be envisaged before then”.
Meanwhile, the euro fell yesterday to its lowest level against the dollar in 9 months, after the news that Italy’s economy came back into recession and Germany factory orders fell 3.2% in June from the previous month. “The first TLTRO will be conducted in September and is expected to boost liquidity further, but measures will continue to take their toll until year-end, as the second TLTRO will be launched in December and the ABS purchase programme will likely start”, comment Barclays experts.