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July 12, 2024

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EZ and UK Government Bonds: Decoupling From the U.S.?
Paying Article

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

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ECB Preview (Jul 18): Policy to Pause Amid Mixed Data
Freemium Article

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 08, 2024

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France Gets PPP - Protracted Policy Paralysis?
Freemium Article

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 04, 2024

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ECB: Council Policy Reservations Deeper Than Expected?
Freemium Article

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 03, 2024

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EZ: Is the Labor Market Starting to Labor?
Freemium Article

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 02, 2024

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EZ HICP Review (Jul 2): Disinflation Resumes Amid Services Resilience – July Cut Off Table?
Freemium Article

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 01, 2024

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France: Heading for Policy Paralysis?
Freemium Article

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

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Eurozone: Monetary Messages Gaining More Prominence?
Paying Article

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

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EZ HICP Preview (Jul 2): Broad Disinflation Resumes? – A Round-Up of Recent Trends
Paying Article

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

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DM Rates Outlook: Rate Cuts Arrive Except Japan
Paying Article

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

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Eurozone Outlook: The Last (Disinflation) Mile
Freemium Article

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

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France Debt: Dependent on Non-Residents
Paying Article

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

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DM Fiscal Consolidation Problems: Politics/Central bank QT and Low Nominal GDP
Paying Article

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

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European Parliament Election Results: A Swing to the Centre Right But Further Right in France
Paying Article

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 06, 2024

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ECB Review: Clearly No Policy Pre-Commitment But Policy Entering New Phase
Paying Article

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 04, 2024

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European Parliament Election: A Swing to the Right?
Paying Article

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

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EZ HICP Review: Core Disinflation Unwinds as Services Resilience Persists?
Paying Article

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

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ECB Preview (June 6): D-Day
Paying Article

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

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Eurozone: PMIs Offer More Positive Gimmers – Still Too Good to be True?
Paying Article

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

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EZ HICP Preview (May 31): Core Disinflation Continues?
Paying Article

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

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ECB: June Rate Cuts Too Trigger More Rate Cut Expectations for 2024/25
Paying Article

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

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Eurozone: Consumers - Still Missing?
Paying Article

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

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Eurozone Data Review: Less Weak But Soft Domestic Demand Taking Less Toll on Core Inflation?
Paying Article

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

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Eurozone GDP Preview (Apr 30): Less Weak?
Paying Article

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

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EZ HICP Preview (Apr 30): Core Disinflation Signs to Flatten Out Further?
Paying Article

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,

April 11, 2024

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ECB Review: ECB Hums Easing Tune for June
Paying Article

April 11, 2024 1:58 PM UTC

Surprising hardly anyone, the ECB is preparing to cut official rates, after what are now five successive stable policy decisions. It explicitly suggested that it could be appropriate to reduce the current level of monetary policy restriction, a policy hint backed up by dropping its previous rhetoric

April 09, 2024

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Eurozone Banks See Company Loan Demand Slump as ECB Unconventional Tightening Bites Further
Paying Article

April 9, 2024 9:22 AM UTC

While there may be few positive straws in the wind in the latest (April) 2024 bank lending survey (BLS), the ECB should fund the balance of results still troubling.  Company credit demand slumped afresh amid rising interest rates and deferred capex plans.  Admittedly, credit supply to firms tighte

April 04, 2024

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ECB Preview (Apr 11): Still the Focus on Words Not Deeds – For Now!
Paying Article

April 4, 2024 12:22 PM UTC

As has been the case for several times now, the ECB meeting verdict due next Thursday (Apr 11) will be notable not for what the Council does but rather what is said just as at the March meeting whose minutes were released today.  A fifth successive stable policy decision is very much expected, albe

April 03, 2024

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EZ HICP Review: Core Disinflation Flattening Out?
Paying Article

April 3, 2024 9:34 AM UTC

Very much having affected ECB thinking, there has been repeated positive EZ news in the form of falling 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, the hea

April 02, 2024

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EZ: Labour Costs in Retreat Amid Hoarding and Workforce Jump
Paying Article

April 2, 2024 9:46 AM UTC

It is ever clearer how the labour market (and particularly labour costs) are the dominant theme for the ECB is assessing the policy backdrop and outlook.  While HICP inflation continues to subside amid an economy backdrop which is flat at best, the labor market still looks apparently unmoved, with

March 27, 2024

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EZ HICP Preview (Apr 3): Core Disinflation Signs Start to Flatten Out?
Paying Article

March 27, 2024 1:25 PM UTC

Enough to have affected ECB thinking, there has been repeated positive EZ news in the form of plunging inflation. This continued in the February numbers, albeit with the 0.2 ppt drops in both headline and core being less that most anticipated. Regardless, the headline, at 2.6%, continued its recent

March 22, 2024

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DM Rates Outlook: Rate Cuts Arriving and Positive Yield Curves
Paying Article

March 22, 2024 2:00 PM UTC

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Eurozone Outlook: ECB Finger on Easing Trigger?
Freemium Article

March 22, 2024 10:42 AM UTC

·        Our GDP outlook remains somewhat less below consensus and ECB thinking than envisaged three months ago, as other forecasters have reduced projections! Regardless, ECB policy has caused an increase in the cost of credit, alongside a fall in supply of credit. The result is that the ec

March 07, 2024

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ECB Review: ECB Bowing to Markets?
Paying Article

March 7, 2024 3:36 PM UTC

With the ECB staff updated forecasts pointing to headline inflation below target somewhat earlier, now in H2 2025 and then through 2026, and the core rate at target on the basis of market rate pricing of future official rates two years hence some 150 bp below current levels, this implies a tacit Cou

March 04, 2024

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ECB Preview (Mar 7): Caution Still the Council Watchword
Paying Article

March 4, 2024 10:45 AM UTC

Once again the ECB meeting verdict due next Thursday (Mar 7) will be notable not for what the Council does (save for downward tweaks to its projections (Figure 1)) but rather what is said.  A fourth successive stable policy decision is unambiguously expected.  This will come alongside a reaffirmat

March 01, 2024

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EZ HICP Review: Core Disinflation Signs Start to Flatten Out?
Paying Article

March 1, 2024 10:41 AM UTC

There has been repeated positive EZ news in the form of plunging inflation. This continued in the February numbers, albeit with the 0.2 ppt drops in both headline and core being less that most anticipated and with some hints that core disinflation may be marked. Regardless, the headline, at 2.6%, co

February 28, 2024

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Eurozone: Retailers’ Margins – the Profits of Gloom?
Paying Article

February 28, 2024 2:03 PM UTC

For all the ECB focus on the wage picture as the key factor shaping how HICP inflation may fare, the ECB has admitted to ‘significant uncertainty surrounding the link between wages and price-setting’. Productivity is one obvious other important consideration albeit probably the main alternative

February 27, 2024

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Eurozone: Credit Weakness Deepens Afresh
Paying Article

February 27, 2024 10:47 AM UTC

The ECB faces an important few weeks, not least with the looming policy assessment and projection update due on Mar 7.  Some downgrade to the real economy and inflation outlook (at least for the next 1-2 years) seems to be on the cards, albeit where the ECB hawks may regard the extent of any downwa

February 23, 2024

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EZ HICP Preview (Mar 1): More Core Disinflation Signs As Services Inflation Slows?
Paying Article

February 23, 2024 9:50 AM UTC

There has been repeated positive EZ news in the form of plunging inflation. This continued in the January numbers, albeit with the 0.1 ppt drops in both headline and core being less that most anticipated. As a result, the headline, at 2.8%, resumed its recent decline having risen to 2.9% in December

February 22, 2024

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ECB January Council Meeting Account Review: Clearer Need to Assess Market Rates Thinking
Paying Article

February 22, 2024 1:37 PM UTC

Unsurprisingly, the account of the January 24-25 ECB Council meeting was interesting is anticipating some downward revision to growth and inflation projections at the looming Mar 7 meeting.  Moreover, it was noted that market rate thinking was in part an endogenous reaction and thus needed to be ca

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Eurozone: PMIs Offer Positive Gimmers - Too Good to be True?
Paying Article

February 22, 2024 9:51 AM UTC

The latest PMI data suggest that the economic contraction it has previously pointed to and which has been largely validated by official data eased somewhat further into 2024.  Indeed, EZ real activity fell at the slowest rate for eight months in February, according to provisional PMI survey data, w

February 20, 2024

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ECB – What is it Actually Targeting as it Assesses Price Persistence?
Paying Article

February 20, 2024 10:24 AM UTC

The ECB remit is targeting an inflation rate of 2% over the medium term.  Implicit in this is that this is measured on a moving y/y basis.  However, there is nothing sacrosanct in this as the ECB is starting to be more open about using shorter-term measures, albeit more as indicators of price mome

February 06, 2024

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Eurozone: The Last Mile, Price Persistence and the Supplies Surprise
Paying Article

February 6, 2024 11:34 AM UTC

That the EZ economy is bordering on recession has obviously been a factor in the ever clearer and broad disinflation process seen of late.  But we would argue (and many DM central banks would empathize) that it has been easing supply problems that has been the main factor.  This better supply back

February 01, 2024

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EZ HICP Review: More Core Disinflation Signs But Services Inflation More Stubborn?
Paying Article

February 1, 2024 10:26 AM UTC

There has been repeated positive EZ news in the form of plunging inflation. This continued in the January numbers, albeit with the 0.1 ppt drops in both headline and core being less that most anticipated. As a result, the headline, at 2.8%, resumed its recent decline having risen to 2.9% in December

January 30, 2024

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Eurozone GDP Review: GDP – Divergent Weakness?
Paying Article

January 30, 2024 10:27 AM UTC

According to official national accounts data, the EZ economy has avoided recession, at least formally albeit against a backdrop of marked, if not increasing national divergence.  Overall the flat q/q EZ GDP 4 reading was a notch below ECB thinking but a notch above consensus but this reflected mark

January 29, 2024

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ECB Doves Coo Louder?
Paying Article

January 29, 2024 11:16 AM UTC

That high-profile ECB Council members are now talking both more clearly and openly about possible near-term rate cuts is of little surprise.  It does fit in with both what was said and that was not said after last week’s Council press conference.  Not least are week-end comments made by BoF Gove

January 25, 2024

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ECB Review: Half Hearted Defence of Policy?
Paying Article

January 25, 2024 3:21 PM UTC

Unsurprisingly this latest ECB meeting was not notable for what the Council did but rather what is said.  This third successive stable policy decision was unambiguously expected as was the more formal attempt to redirect market thinking that still prices 50 bp rate cutting by mid-year.  Thus, it s

January 24, 2024

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EZ HICP Preview (Feb 1): More Core Disinflation Signs As Headline HICP Fall Resumes?
Paying Article

January 24, 2024 3:24 PM UTC

There has been repeated positive EZ news in the form of plunging inflation. After coming in lower than envisaged for the third successive month, the December HICP inflation instead were in line with consensus thinking.  Having dropped 0.5 ppt to a 28-month low of 2.4% in November, this was exactly

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Eurozone GDP Preview (Jan 30): GDP - Actual Recession Continues?
Paying Article

January 24, 2024 10:03 AM UTC

According to official national accounts data, the EZ economy has been in near recession, having seen GDP move sideways in the year to Q3, albeit with a decline of 0.1% q/q in that latter quarter.  We see another such drop occurring in the looming Q4 flash figure (Figure 1).  Such a result, involvi

January 23, 2024

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Eurozone Banks Continue to Limit Credit Supply as Demand Still Falters
Paying Article

January 23, 2024 9:53 AM UTC

Not unsurprisingly, the January 2024 bank lending survey (BLS), saw EZ banks moderately tighten their credit standards further for loans in the last quarter of 2023. For ECB hawks who have suggested that the fall in market interest rates in the last few months constitutes and easing in financial con