This week in financial markets will be mostly – if not all – about monetary policy. Starting today is the ECB Forum on Central Banking, the equivalent of the Federal Reserve’s Jackson Hole symposium, which ECB President Draghi has used several times to give investors not so subtle hints on future policy.
Market expectations are high as inflation expectations have collapsed and the implied probability of a rate cut this year has spiked to above 60%. Investors will also be looking for any evidence that the ECB is willing to start another round of QE, if deemed necessary. There will be even more focus on the Federal Reserve later this year, as markets have now almost completely priced in a rate cut no later than July. More QE is less likely here, at least in the short term, as the Fed is one of the few central banks that can actually significantly lower rates if needed. Overall, market expectations look pretty aggressive, leaving little room for a nuanced message from either Mr. Draghi or Mr. Powell.
