JPMorgan says it no longer expects the European Central Bank to cut rates further after some strong eurozone business surveys for August “continue to suggest virtually no impact from the UK’s Brexit vote”.

Purchasing managers’ indices published today suggested the eurozone private sector enjoyed its best month in seven in August.

The index jumped to 53.3 in August from 53.2 in July, and topped forecasts of a drop to 53.1.

JPMorgan says this is consistent with GDP growth of 1.6 per cent, suggesting the eurozone economy could grow faster than the 1.25 per cent growth it had predicted from the third quarter of this year to the middle of next year.

It’s not revising up its growth forecast yet, but is rejigging its monetary policy expectations.

JPMorgan had previously been predicting the ECB would cut its deposit rate a further 10 basis points to -0.5 per cent at its September meeting.

But today strategist Greg Fuzesi said:

We are completely removing the rate cut from our forecast, as the ECB is unlikely to feel enough pressure from the current growth data or from the currency.

The bank has also revised its QE call.

Before today’s PMIs, it expected the ECB to extend its bond buying programme beyond March 2017 at its September meeting.

It still expects an extension, but suggests the ECB will not announce this until October or “or more likely the December meeting”.

In the meantime JPMorgan “expects the ECB to buy time with a sufficiently dovish statement in September, essentially hinting that QE is likely to be extended”.

Mr Fuzesi says “this will give it more time to decide on the modality changes needed to carry out the next batch of QE purchases.” (More on that here)

In terms of specifics, JPMorgan expects the ECB to extend QE by nine months until December 2017. It also predicts a further extension, most likely until mid-2018, which “could be announced late in 2017”.

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