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October 17, 2024 1:45 PM UTC
The latest 25 bp rate cut from the ECB was obviously not anticipated at the previous meeting, although perhaps the Council was more open to such a move than the press conference then suggested. But it is clear a reassessment is occurring, not just of the inflation outlook but the real economy too.
October 16, 2024 2:17 PM UTC
All and sundry wait as much for the what the ECB says tomorrow (Oct 17) than what it does (ie cut by another 25 bp). The consensus is that the Council will have to sound much more cautious about downside risks to both (its somewhat optimistic) growth outlook and its too pessimistic inflation pictu
October 11, 2024 9:04 AM UTC
The 2025 budget could pass via a sequence of events, but the potential outcome is so uncertain that it is difficult to attach a probability to the various scenarios. Drama will be high for the next 12 months, which will also most likely see a parliamentary election from July 2025. France has been
October 10, 2024 12:56 PM UTC
It now seems very likely that the ECB will cut rates at a successive Council meeting for the first time in this easing cycle dating back to June. To date the ECB has allowed the impression that it would ease only every other meeting, ie once a quarter, partly to give it access to what it sees as k
September 30, 2024 2:20 PM UTC
Recent economic data and national CPI numbers have increased the economic case for less restrictive policy. Combined with softening of guidance from ECB Lagarde and Schnabel, this leaves us inclined to now forecast a 25bps cut at the October 17 ECB meeting. This will likely be followed by a 25bp
September 27, 2024 9:38 AM UTC
Lower fuel prices will be a key factor in September’s HICP numbers, and enough of a factor to pull the y/y rate to 1.9%, which would be the lowest in over three years and this despite still little material change in services inflation. Indeed, the risk is of an even lower outcome. This may be sh
September 24, 2024 9:00 AM UTC
• For U.S. Treasuries, we see 2yr yields coming down further on our baseline soft landing view, as the Fed moves consistently to a 3.00-3.25% Fed Funds rate. However, with considerable Fed easing already discounted, 2yr yield decline should be modest and 2yr yields should bottom mid-2025. 1
September 23, 2024 9:17 AM UTC
· It does seem as if EZ activity expectations are being pared back in line with our below consensus thinking, most notably for next year. The result is that while the economy has been growing afresh it is doing so timidly, with downside risks persisting through 2024 and 2025 and where
September 12, 2024 2:16 PM UTC
That the ECB cut the discount rate again by another 25 bp (to 3.5%) was no surprise. Neither was an unchanged tone at the press conference, with no clearer acknowledgment of downside risks even given ECB GDP projections (Figure 1) which moved down more toward our long-standing below-consensus thin
September 6, 2024 10:53 AM UTC
The fact that EZ growth was revised down a notch to 0.2% in Q2 is of little importance – it partly reflects a small recovery in imports that we have been flagging for some time would be a likely break on recorded activity. Over and beyond more signs of slowing wage pressures in Q2 data, more not
September 5, 2024 11:18 AM UTC
That the ECB will cuts official rates again when it gives its next policy verdict on Sep 12 is now almost a given. Even the hawks on the Council are willing to concede that the discount rate can (and maybe even should) fall another 25 bp (to 3.5%). This will come alongside larger reductions to t
September 4, 2024 10:36 AM UTC
There are suggestions that worries about weaker growth are now reverberating within the ECB, albeit with the hawks still more mindful of service price resilience. But the former worries chime with our long-standing concern of downside risk to what we still see is a below-consensus growth outlook,
August 30, 2024 9:40 AM UTC
Prior to these latest HICP numbers, it could be argued that the EZ disinflation process has stalled given that no further drop beyond that to 2.4% in April had occurred. Indeed, somewhat unexpectedly, headline HICP inflation rose a notch to 2.6% in July, reversing the slide seen in June. This is
August 27, 2024 9:47 AM UTC
A keynote speech by ECB Chief Economist Lane at Jackson Hole over the week-end suggested that further monetary easing is on the way but in a path that has to steer between the risks of moving too fast against those from moving too slowly. Very clearly he implied that policy will still have to rema
August 22, 2024 12:24 PM UTC
Elements of the July accounts help build confidence in more easing we expect ECB Lane Jackson Hole speech on Saturday to also provide comfort in near-term rate expectations. However, it is clear that key ECB board members do not want to be as clear as the run-up to the June meeting, but this could
August 14, 2024 2:02 PM UTC
It could be argued that the EZ disinflation process has stalled given that no further drop beyond that to 2.4% in April has occurred. Indeed, somewhat unexpectedly, headline HICP inflation rose a notch to 2.6% in July, reversing the slide seen in June. This is even the case regarding the core ra
August 12, 2024 9:52 AM UTC
The EZ economy has been seeing downside risks but ones that may now be materializing. The fact that growth rates among the EZ main economies have diverged of late (Spain robust, Germany contracting afresh) actually reflects a marked disparity in growth rates between strong services and persisting
August 5, 2024 11:57 AM UTC
Amid waning momentum in business surveys of late, most notably in services, the ECB was starting to see some of the downside growth risks it has flagged actually start to materialise. But the equity market slump now unfolding provides an added and significant downside risk. It has direct adverse
July 31, 2024 9:32 AM UTC
It could be argued that the EZ disinflation process has stalled given that no further drop beyond that to 2.4% in April has occurred. Indeed, somewhat unexpected, headline HICP inflation rose a notch to 2.6% in the July flash, reversing the slide seen in June. This is even the case regarding the
July 30, 2024 9:31 AM UTC
At best, the EZ economy is diverging ever more clearly as Germany falters while Spain prospers more discernibly. But while EZ GDP may have shown a sub-trend type result of 0.3%, thereby matching the Q1 outcome, there are questions about momentum, with survey data suggesting it is both feeble and p
July 25, 2024 9:19 AM UTC
According to revised official national accounts data, the EZ economy actually avoided what was previously suggested to have been a modest recession in H2 last year. Moreover, the economy sparked back in Q1, albeit against a backdrop of marked, if not increasing, national growth divergences but where
July 23, 2024 10:09 AM UTC
The clear disinflation trend was still evident even after higher and higher-than-expected May numbers, where the headline moved up from 2.4% to a three-month high of 2.6%. That disinflation trend looks more discernible after the partial drop back to 2.5% seen in the June HICP, albeit with some far
July 18, 2024 1:56 PM UTC
Maybe the ECB is now thinking that it was too clear at its April Council meeting that rate cut would occur subsequently in June, basically then suggesting that something would have to occur to prevent such a move. This time, with policy rates held as very much expected, the policy window was merel
July 16, 2024 8:58 AM UTC
There were more positive straws in the wind in the latest (July 2024) bank lending survey (BLS), providing some reassurance for the ECB ahead of this week’s Council meeting. Most notable was a reported increase in demand for both housing loans and consumer credit for the first time since 2022 and
July 16, 2024 7:31 AM UTC
EU finance ministers gather in Brussels today in a regular meeting but this time will discuss excessive fiscal deficits in various member countries, in particular, Belgium, France, Italy, Hungary and Poland. It is unclear just how specific any criticisms will be either in pointing out particular c
July 12, 2024 9:37 AM UTC
Different economic and inflation dynamics, plus no constraint from trade weighted exchange rates, means that the ECB and BOE can cut irrespective of the Fed in the coming quarters. This can see 2yr yields decline, though less so in Germany where a 2.5% ECB depo rate is already discounted. 10yr y
July 12, 2024 9:36 AM UTC
ECB thinking comes backs onto the radar screen next Thursday. Given the hints from Council members, all policy rates will be held this time around. But markets will be more focused on hints on the speed and timing of further moves, not least after what was one formal dissent last time, and amid wi
July 8, 2024 6:46 AM UTC
French politics is getting used to surprises. After the unexpected snap election that saw the far right poll the most in the first round of parliamentary results last week, Sunday’s second round surprisingly saw President Macron's centrist forces perform more strongly than expected by coming in
July 4, 2024 12:23 PM UTC
The account of the June ECB Council meeting confirmed one dissent against the widely flagged 25 bp rate cut but also revealed perhaps clearer reservation among some other members about easing at that juncture. Indeed, there seemed to be disagreement about interpreting data; what is the basis for a
July 3, 2024 10:51 AM UTC
With markets and policy makers very much focused on inflation, the EZ labor market continues to shine – apparently! Indeed, the EZ jobless rate has remains at a record-low of 6.4%, hinting at labor market tightness that will perturb ECB hawks wary of higher ensuing wage pressures. But this appar
July 2, 2024 9:33 AM UTC
The clear disinflation trend was still evident even after higher and higher-than-expected May numbers, where the headline moved up from 2.4% to a three-month high of 2.6%. That trend looks more discernible after the partial drop back to 2.5% seen in the June flash HICP, albeit with some far from r
July 1, 2024 6:45 AM UTC
After the largely expected first round of parliamentary results, in which the far right won the most votes, equally expected has been the fact that both the centrist and left parties have already called for tactical voting to stop the right winning an actual majority in run-offs on Jul 7. It is st
June 28, 2024 11:11 AM UTC
Amid speculation about the size and durability of any EZ real economy recovery, one important thing is still lacking. Indeed, monetary data remain weak; while money supply growth measures have turned positive what we think are the more important aspects, namely credit data remain feeble. Data th
June 26, 2024 10:29 AM UTC
The clear disinflation thrust of recent data (Figure 1) has obviously affected most ECB thinking. Notably, the downward trend is still evident even after higher and higher-than-expected May numbers, where the headline moved up from 2.4% to a three-month high of 2.6%. More notable perhaps was tha
June 24, 2024 8:45 AM UTC
• For U.S. Treasuries we see a steady easing process from the Fed from September, which can allow 2yr yields to fall consistently. However, the decline in H2 2024 will be slower at the long-end from traditional yield curve steepening pressures and then we see fiscal stress in H1 2025 unde
June 19, 2024 8:48 AM UTC
· Our still soft EZ GDP outlook remains only a little below consensus and ECB thinking as we still suggest ECB 2022-23 policy has caused a clear increase in the cost of credit alongside a fall in supply of credit. The result is that while the economy is now growing afresh but is doing s
June 18, 2024 9:20 AM UTC
Any further major fiscal slippage under a new government could prompt more of a reduction in French government bond exposure, which would likely mean a multi month/quarter risk premia for France and cause spillover difficulties for Italy. It is worth remembering that France is dependent on non-resid
June 11, 2024 2:10 PM UTC
Some governments are politically reluctant to restrain government expenditure growth or in the U.S. case raise taxes. This means that intermittent fiscal stress and concerns can be seen in the coming years. However, to get to crisis levels would require a government that abandons any attempts
June 10, 2024 8:52 AM UTC
This week-end’s European Parliament elections produced the widely expected swing to the right, albeit more an electoral rebuff for incumbent ruling parties as voters registered their protests against current governments. Hard-right parties largely did well but there were clear exceptions (Belg
June 6, 2024 2:11 PM UTC
As has been the case with many recent ECB verdicts, markets are keener to hear what is being said by the Council rather than what has been done. In regard to the latter, and given the almost unanimous hints from Council members, all policy rates were cut by the expected 25 bp, with the key deposit
June 4, 2024 9:09 AM UTC
This week-end (Jun 6-9 actually) sees fresh European Parliament elections, with it likely that that compared to the last (2019) result, there will be a clear swing to right-wing and/or populist parties. However, polls do not suggest anything like enough of swing away from the current parliamentary
May 31, 2024 9:42 AM UTC
Very much having affected ECB thinking, there has been repeated positive EZ news in the form of falling EZ HICP inflation and somewhat broadly so. This abated last month and even more so in these May numbers, with the headline moving up from the unchanged 2.4% reading to a three-month high of 2.6%,
May 30, 2024 10:44 AM UTC
Given the almost unanimous hints from Council members, something unexpected is needed to prevent the ECB from starting to cut its policy rates on June 6, most notably the key deposit rate currently at an unprecedented 4.0%. The question markets are considering is how/when this widely expected 25 bp
May 23, 2024 9:19 AM UTC
The latest PMI data suggest the EZ economic recovery gained further momentum in May as the composite index rose to 52.3 in May from 51.7 in April, thereby implying positive private sector growth for the third consecutive month. We remain wary about the messages from the data (see below and Figure
May 22, 2024 11:10 AM UTC
Very much having affected ECB thinking, there has been repeated positive EZ news in the form of falling EZ HICP inflation and somewhat broadly so. This abated in April, with the headline staying at 2.4% but with the core down a further 0.2 ppt to a 27-mth low of 2.7%, as higher fuel prices were offs
May 20, 2024 10:50 AM UTC
However much the Council will resist fueling discussion of possible easing path, confirmation of a 1 cut normally increases speculation over further easing in subsequent quarters and we see 25bps in June followed by 25bps in September and December. The market could discount some more easing over t
May 15, 2024 10:34 AM UTC
Revised national account data confirmed the upside surprise in the preliminary data with EZ GDP rising 0.3% q/q. The question is whether this emergence from the modest H2 2023 recession is the start of more sustained momentum. We think not, mainly due to what are still weak consumer fundamentals
April 30, 2024 9:29 AM UTC
According to revised official national accounts data, the EZ economy was in recession in H2 last year, albeit modestly so and against a backdrop of marked, if not increasing, national growth divergences. This geographical variation continued into Q1 (Figure 1) where the flash GDP reading exceeded ex
April 24, 2024 11:06 AM UTC
According to revised official national accounts data, the EZ economy was in recession in H2 last year, albeit modestly so and against a backdrop of marked, if not increasing, national growth divergences. This geographical variation is likely to have continued into Q1 (Figure 1) where we see a flat o
April 23, 2024 9:43 AM UTC
Very much having affected ECB thinking, there has been repeated positive EZ news in the form of falling EZ HICP inflation and somewhat broadly so. This continued in the March HICP numbers, with the 0.2 ppt drops in both headline and core being a notch more sizeable than most anticipated. Regardless,