ECB QE Monitor - November 2020

Key points for this month:

• In October, the ECB bought €62bn under the PEPP and €25bn under the APP.

• The ECB's balance sheet is now equivalent to 58% of euro area GDP compared to 39% at the start of the year.

• PEPP:
  • The ECB already used up around €629bn or 46% of its EUR1.35tn PEPP envelope.
  • The ECB has reduced the pace of PEPP purchases compared to the March-June period.
  • No granular details for PEPP: The ECB will only publish details of PEPP composition on a bimonthly basis and the next one will be in early Dec. 2020.

•  APP
  • In October, ECB net asset purchases reached €25bn under APP, up from an average pace of €20bn per month in Jul-Aug and slightly below the €34bn of purchases in September.
  • In October, APP by programme:  PSPP (€19.2bn; 75.3% of total), CSPP (€7 bn; 27.4%), CBPP3 (€-1bn; -3.9%) and ABSPP (€0.3bn; 1.1%).
  • Between March and October, the ECB used around €105bn of the temporary APP envelope of €120bn (end: December 31, 2020).
  • Deviation of PSPP purchases from capital key proportions was in favor of Germany and Spain against France and Supranational.

• Redemptions:
  • APP redemptions in November 2020 will total €29.9bn, of which €22.5bn will be PSPP redemptions. Between November 2020 and October 2021, total APP redemptions will be €258bn, of which €203bn will be PSPP redemptions

Our convictions:

• We expect in December a full package of measures. Besides eventual use of new tools which has not to be excluded, the ECB is likely to announce a combination of the following current measures:
  • A remarkable expansion of QE, probably more through the more flexible PEPP, but also through a continuation of current APP purchases. We think that an increase by €500bn is a minimum as this is the level anticipated by consensus.
  • An extension of the QE to year-end, and of reinvestments by “at least” another year, at the end of 2023, a strengthening of the forward guidance.
  • The extension and/or cheapening of the favorable terms of the TLTROs, likely to be accompanied by an increase in the tiering multiplier. The last messages from Bank Lending Surveys and the new impact of covid second wave on credit are important rationales behind a stronger support to the banking system, crucial to keep the credit channel flowing.
  • We do not expect at this stage the ECB to buy fallen angels, but this option remains on the table.
• Increased QE firepower represents a strong support to fiscal policy to expand its scope in order to sustain growth, both at country and EU level.