Analysts at ABN AMRO think that financial markets have largely priced out further action from the ECB for later this year and are pricing in some chance of only modest additional stimulus in 2020.  

• “ECB-dated Eonia swaps suggest investors expect the central bank to remain on hold through the end of this year, while 3-month Euribor futures even price in somewhat higher rates. The latter most likely reflects expectations that the ECB’s tiering system (where around EUR 800bn of reserves will no longer be charged at the deposit rate) may put upward pressure on interbank rates. Meanwhile, Eonia swaps and Euribor futures are pricing in around a 60% chance of a 10bp cut in the deposit rate next year.
• The consensus of economists polled by Bloomberg also expect the deposit rate to remain unchanged this year, while one additional 10bp reduction in June of next year is expected.
• Although market expectations are consistent with the ECB’s current views and guidance, we take a different view. In particular, we think that the ECB is too optimistic on the macro outlook as well as on the effects of its September stimulus package. As such, we maintain the view that the ECB will cut its deposit rate by 10bp in December of this year before stepping up the pace of net asset purchases at the March meeting (to EUR 40bn a month from April). The combination of macro downgrades and additional ECB stimulus should fuel a renewed rally in government bond markets over the coming months.”