[PRIMER] ECB weekly net PEPP data due 14:45GMT/09:45EST ahead of Thursday's ECB rate decision

• Last week (1st March) the net PEPP figure came in at EUR +12.037bln vs prev. EUR +17.223bln, a drop that was somewhat of a surprise given the recent jawboning (see below) from ECB Officials on utilising the flexibility of the tool. However, the attention around the figure prompted an ECB spokesperson to comment alongside the weekly account release on Tuesday (2nd March) to emphasise that the gross PEPP figure was EUR +16.9bln and the low net figure was explained by EUR -4.9bln of redemptions. For reference, recent net weekly PEPP prints have been running at around EUR +17bln and the more detailed breakdown of operations by each nation for the February-March period will be provided in April. On today’s number IFR writes that the net figure is likely to be lower once again due to Italian redemptions, though this will not be evident until the gross release on Tuesday.


• While last week’s data was in-focus, today’s release is perhaps more notable given that the figure accounts for settled trades and only encapsulates those executed as of business-close on Wednesday. Particularly as some desks have highlighted the prospect of the ECB increasing purchases of BTPs from last-Monday, rather than the previous week; therefore, such activity would be encapsulated within today’s data – but, regional bias will not be discernible until April.


• Ahead of the last weeks release, Pictet's Ducrozet wrote that if PEPP stays below EUR 20bln we could see an increase in market pressure but a rise to above EUR 25bln in the scenario yields continue to increase could question the ECB's credibility and possibly prompt an additional response. Also, highlights that the implied weekly purchase pace for the entire EUR 1.85trl remit to be used by March-2022 is roughly EUR 19bln/month.


• Brief summary of the recent commentary: the most prominent of which has seen both ECB President Lagarde and Chief Economist Lane reiterate the flexibility of PEPP purchases and highlighting that they are closely monitoring nominal bond yields. Additionally, Lane remarked that an excess tightening of yields would be inconsistent with combating the COVID-19 shock to the inflation path. Much more explicitly, Stournaras stated there is no fundamental justification for tighter nominal bond yields at the long-end and such a tightening is unwarranted therefore the ECB should increase the purchase pace of PEPP – commentary that contrasts with the view taken by the Fed for instance, but more in-fitting with RBA intervention and BoJ sources/commentary recently. Link to newsquawk Hawks & Doves for all pertinent recent commentary and source reports.
  


• Source reports following last week’s PEPP data indicated that the ECB is said to see no requirement for drastic action to curb advances in yields; indicating that policymakers view verbal intervention and the flexibility of PEPP as the tools to manage the recent rise in yields.


• The next ECB policy announcement is due this Thursday. At which, policy options remain limited with a cut to the deposit rate still deemed as unlikely despite warnings from various officials. Expanding the envelope of PEPP is also unlikely due to the remainder of the envelope left (circa EUR 1trl) and therefore, for now it appears that there are few options left for the ECB to control yields beyond jawboning and increasing PEPP purchases.

08 Mar 2021 - 08:35- Research Sheet- Source: Newsquawk