Intesa Sanpaolo : Only two, small, changes emerged from the ECB monetary policy meeting.
Weekly Economic Monitor – 22. January 2021
Intesa Sanpaolo – Research Department
(1) the balance of risks remains skewed to the downside, but less so than in December;
(2) the bidirectional nature of PEPP flexibility was mentioned in the press release, that stressed the possibility of the envelope not being used in full by 31 March 2022 alongside the usual promise to preserve favourable financing conditions.
Otherwise, the ECB still considers the baseline scenario outlined in December 2020 to apply, and sees no reason to adjust monetary policy. The central bank’s stance will not change in March, nor in April.
The week’s market movers
In the Eurozone , several economic indicators will be released this week. The initial estimates of 4Q GDP will outline a widespread contraction of economic activity. The last stages of the round of January confidence surveys should outline a widespread deterioration in sentiment, due to uncertainty tied to the COVID contagion curve and to the tightening of restrictive measures in many countries. January inflation is forecast higher in Germany, whereas in France retail sales are expected to have rebounded strongly in December.
This week, focus in the United States will be on the political developments (the new President’s actions and the evolution of the balance of power in Congress), and on the FOMC meeting. The Fed is expected to keep monetary policy unchanged, stressing that it is too early to even discuss a reversal. For what concerns data, 4Q GDP should be positive, notwithstanding a consumption slowdown. January consumer confidence indices should improve somewhat. Among December releases, personal spending should be down again, whereas personal income is expected to stabilise, while new home sales should rise slightly. The core PCE deflator in December should be modestly up, staying on a very moderate uptrend.
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