Earlier previews of the ECB meeting today:

More ... this via HSBC:

Mr Draghi's statement on 26 June that "deflationary forces have been replaced by reflationary ones", alongside a more hawkish tone from central bankers globally, sparked market concerns about an earlier than expected tightening of eurozone monetary policy.

  • Market prices now imply a 65% probability of depo rate tightening of 10bp or more by June 2018.

But some perspective is required.

  • The recent move in implied rates only took us back to early May levels.
  • The June ECB minutes argued that the inflation outlook was little changed, despite a firming growth recovery.
  • And tapering merely reduces the pace of easing: tightening may be a long way off.

In our view, the ECB is rightly preparing markets and governments for the end of QE. But with no signs of underlying inflationary pressures, and political risks ahead, we have not changed our view that tapering will not end until Q4 next year.

  • And with the ECB maintaining its guidance that rates will be on hold until net purchases have ended, we do not anticipate any policy rate rises this year or next.

There won't be a new forecast in July. But the story hasn't changed much from June. Survey data, although they have softened a little, continue to point to healthy growth in Q2. But as Mario Draghi has long argued, the good news on growth is not translating into higher inflation. In June, inflation fell to 1.3% y-o-y, although core and services inflation ticked up slightly.

  • The oil price is below the cut-off point for the June forecast
  • And the euro has appreciated

So if anything, there is a risk of another downside revision to the ECB inflation forecast in September.

via UBS:

Further "tightening" in ECB communication on 20 July - but very carefully

  • We think that - within the broader framework of multi-year policy normalisation - the ECB is now focused on carefully preparing the markets for a tapering decision on 7 September.
  • The ECB has already tightened its communication at the last meeting on 8 June and in a speech by ECB President Draghi in Sintra on 27 June, and we think that it will take the next step at the upcoming meeting on Thursday, 20 July.

However, since the market reacted very sensitively to Draghi's Sintra speech, we think the ECB will communicate very carefully.

Specifically,

  • we expect the ECB to stress the good data even more clearly than before;
  • to weaken its QE easing bias somewhat;
  • and to indicate that a reassessment of its policy stance is due in early September, based on new macro forecasts.

However, in order to not upset the markets, Mr Draghi is likely to assure the markets that the ECB will move slowly towards normalisation and continue, for the foreseeable future, to offer a substantial degree of policy accommodation.