ECB: dovish tone and calm markets - but flexibility needed with volatility ahead

• ECB tone: The overall stance is still broadly accommodative and aims to confirm the consensus view. It is reasonable to expect a gradual tapering of the Asset Purchase Programme (APP) in Q4 and the first rate hike in mid-2019. However, the ECB still questions the reading of the recent deterioration seen in the surveys: it seems likely that it could wait until July to clarify its monetary strategy. 

• Economy and risks: As expected, President Draghi did not talk-down the economy but, instead, took the opportunity to stress that real GDP growth outlook, despite signs of moderation in Q1, is still solid and broader based in terms of engines of growth. While the risks to growth are still considered balanced, the “global risks” - in particular the rise in protectionist tensions - have become prominent.

• Investment strategy: Carry is still the ‘name of the game’ to generate value in Euro fixed income (as the recent slowdown in growth does not call for a faster change in current monetary policy) at least until the next meeting. High flexibility applied to portfolio management is a must, in our view, to benefit from the expected volatility that will arise when ECB delivers a clearer message on what will come next. On global credit, different phases in the cycle call for actively playing sector divergences in Europe and the US. In Europe, we are cautious on industrials and prefer financials, while in the US is the opposite: we prefer industrials, energy and TMT, but we are less keen on financials.

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