Focus will be on markets digesting the implications of both ECB and Bank of England’s new (and somewhat vague) form of forward guidance. European central bankers are clearly keen to avoid the contagion of the Fed exit looming in the form of rising yields. Focus will be on what the ECB refers to when saying rates will stay low for an ‘extended period’ and whether the Bank of England (BoE) will provide more explicit guidance at a later stage. While both the ECB and the BoE are seemingly looking to the Fed for forward-guidance inspiration and are clearly not headed for as explicit guidance as the Scandi rate-path forecasts, what stands back is that European yield curves should steepen going forward: the short end is now anchored by the ECB commitment whereas longer- dated rates should move higher on an improving euro-area outlook and the prospect of higher US yields as Fed exits. The ECB guidance could also spur investor interest in eurozone peripherals.
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Danske Bank