Expectations on the big policy update from the European Central Bank are high, while hopes for Morrisons are less elevated.
Some monetary policy stimulus from the ECB is thought to be nailed on, with an interest rate cut widely predicted, even though the key deposit rate is already in the negative.
In what will be ECB president Mario Draghi’s last meeting before he passes the baton on to Christine Lagarde, he has been pushed to a final change in policy by economic stagnation around Europe, including persistently low inflation and worries about growth, US tariffs and Brexit.
“Hard though it is to believe, with the key ECB deposit rate at -40 basis points (bps), further monetary easing is merited,” said Stewart Robertson, senior economist at Aviva.
He suggested that markets could show their disappointment if the ECB governing council’s actions are felt to be insufficient, though it is not easy to determine exactly what the market is expecting.
“A cut in the deposit rate to -50 bps (mitigated by the introduction of some form of tiering to protect weaker banks) and an announcement of a resumption of QE in the near future (perhaps €30bn a month) is probably the minimum that will be needed for insatiable markets,” Robertson said, adding that as always with Draghi, “the devil will be in the detail”.
Analysts at Rabobank said expectations in some quarters of a cut bigger than 10 basis points “are excessive” and that the unveiling of a set of complementary measures is more likely.
“That said, the Council seems to be most divided on asset purchases, and whether these should be announced as part of one big package or sequentially,” the Dutch bank said.
“To us, the main risk is therefore that asset purchases are postponed or watered down. However, considering the outlook, we believe that purchases will ultimately prove inevitable.”
Tough summer for Morrisons
Wm Morrison PLC (LON:MRW) shares have dropped to three-year lows of late, with weak consumer confidence and concerns over costs post-Brexit no doubt playing their parts.
Of more concern is the latest UK grocery market share data from Kantar, in which Morrisons lost another 0.2 percentage points to take it down to 10.1% – comfortably below the 13.6% combined share of Aldi and Lidl.
UBS has trimmed its like-for-like sales estimates after what it describes as a “slower summer” compared to last year, when the hot weather and World Cup boosted results.
But analysts do expect margins to pick up in the second half, helped by various cost savings and better wholesale economics.
Thursday September 12:
Economic data: ECB policy statement, EU industrial production, US consumer prices index, US initial jobless claims