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

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,

ECB Review: ECB Hums Easing Tune for June

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

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

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

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

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

EZ HICP Review: Core Disinflation Flattening Out?

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

EZ: Labour Costs in Retreat Amid Hoarding and Workforce Jump

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

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

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

DM Rates Outlook: Rate Cuts Arriving and Positive Yield Curves

March 22, 2024 2:00 PM UTC

Eurozone Outlook: ECB Finger on Easing Trigger?

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

ECB Review: ECB Bowing to Markets?

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

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

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

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

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

Eurozone: Retailers’ Margins – the Profits of Gloom?

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

Eurozone: Credit Weakness Deepens Afresh

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

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

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

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

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

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

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

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

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

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

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

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

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

Eurozone GDP Review: GDP – Divergent Weakness?

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

ECB Doves Coo Louder?

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

ECB Review: Half Hearted Defence of Policy?

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

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

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

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

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

Eurozone Banks Continue to Limit Credit Supply as Demand Still Falters

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

ECB Minutes; Rate Cuts Seen But Not Heard?

January 18, 2024 2:22 PM UTC

In the press conference following the Dec 14 ECB Council meeting, President Lagarde was adamant that ‘we did not discuss rate cuts at all. No discussion, no debate on this issue’.  But the just-released account of the meeting suggest that rate cuts may not have been formally spoken about, but t

ECB Meeting Preview: Summertime and the Living is Easing

January 17, 2024 12:22 PM UTC

Once again the looming ECB meeting (January 25) is one where markets are not preoccupied with what the Council will do but rather what is said.  Stable policy is just about nailed on, but the question is whether there will be any more formal attempt to redirect market thinking that still prices in

EZ: Misleading Signals in Record Low Jobless Rates

January 16, 2024 2:16 PM UTC

While HICP inflation continues to subside amid an economy backdrop which is flat at best, and shrinking on a domestic basis, the labor market still looks apparently unmoved. Indeed, the EZ jobless rate has just returned to a record-low of 6.4%, hinting at labor market tightness that will perturb ECB

Eurozone Outlook: A Different Inflation Story?

January 12, 2024 11:13 AM UTC

Our Forecasts
Risks to Our Views
Eurozone: Price Pressures Receding Clearly
That the EZ economy is probably in recession, albeit a modest one, misses the point as the zero growth of the last year would have been some two ppt weaker were it not for the slump in imports.  This is important as it not onl

Eurozone: Does the ECB Have to Adjust its Inflation Thinking?

January 12, 2024 9:36 AM UTC

Figure 1: Headline m/m Price Pressures Running Near Zero
Source: ECB, CE where smoothed equates to 3-mth mov avg 
Confused ECB Inflation Thinking?In a very much unsurprising attempt to wrestle back market speculation about rate cuts starting as early as Q2, the ECB is underscoring that inflation this

EZ HICP Review: More Core Disinflation Signs As Headline HICP Jumps on Energy Base Effects?

January 5, 2024 11:04 AM UTC

Figure 1: Headline and Core Inflation Diverge?
Source: Eurostat, Continuum Economics 
ECB Take Note! Indeed, we now envisage that the headline may now hit target by mid-2024, well over a year earlier than the ECB envisages, while the core should continue to fall in the interim regardless. There are

ECB Starting Talk About Rate Cuts

December 21, 2023 9:29 AM UTC

Figure 1: Previous ECB Easing Cycles  
Source: Continuum Economics
ECB officials have started talking about rate cuts, in contrast to the last ECB press conference that was backward looking and designed to reinforce the tightening that had already occurred.  ECB officials have a tendency to look b

EZ HICP Preview (Jan 5): More Core Disinflation Signs Even As Headline HICP Jumps on Energy Base Effects?

December 20, 2023 10:17 AM UTC

Figure 1: Headline and Core Inflation Ease Further?Source: Eurostat, Continuum EconomicsECB Take Note!Indeed, we now envisage that the headline may now hit target by mid-2024, well over a year earlier than the ECB envisages, while the core should continue to fall in the interim regardless.  There a

DM Rates Outlook: Front End Favored

December 15, 2023 10:19 AM UTC

•    EZ debt yields will also see a swing back towards a positive shaped yield curve.  Gradual ECB rate cuts will translate into a persistent decline in 2yr yields in 2024, but slower in 2025 as the market will be uncertain about the terminal policy rate and the ECB forward guidance will like

Eurozone Outlook: A Different Inflation Story?

December 15, 2023 10:16 AM UTC

Our Forecasts
Risks to Our Views
Eurozone: Price Pressures Receding Clearly
That the EZ economy is probably in recession, albeit a modest one, misses the point as the zero growth of the last year would have been some two ppt weaker were it not for the slump in imports.  This is important as it not onl

ECB Review: Council Sticks to its Optimistic Guns

December 14, 2023 3:05 PM UTC

Figure 1: ECB Still Too Optimistic on Growth
Source: Bloomberg, ECB, CE
PEPP Talk and WalkIn a somewhat surprise move, at least in terms of timing, the ECB announced its intends to stop some reinvestments of the € 1.7 tn pandemic emergency purchase programme (PEPP) portfolio during the second half o

Eurozone Outlook: Monetary Masochism

September 27, 2023 9:29 AM UTC

Our Forecasts
Source: Continuum Economics, Eurostat
Risks to Our Views
Source: Continuum Economics
Eurozone: Economic Clouds Getting Darker
That the EZ economy has apparently avoided recession misses the point.  Admittedly, after contracting in Q4 last year the economy has eked out small gains in the la

Eurozone Outlook: Import(ant) Downside Risks

June 21, 2023 9:38 AM UTC

Our Forecasts
Source: Continuum Economics, Eurostat
Risks to Our Views
Source: Continuum Economics
Eurozone: Modest Recession Masks Deeper Domestic Downturn
Starting with the good news; the EZ economy has apparently seen continued resilience despite what now is the fact that a formal recession has been t

France downgraded one notch

May 1, 2023 8:08 AM UTC

Figure 1: Net Government Debt/GDP
Source: IMF
Excess Debt Catching Up With France
Fitch downgrade rationale includes two key themes. Firstly, that the social unrest surrounding pension reform will likely make it more difficult for the government to consolidate government debt/GDP. With Macron's go

Eurozone Outlook: Out of the Frying Pan…

March 27, 2023 8:01 AM UTC

Our Forecasts
Source: Continuum Economics, Eurostat
Risks to Our Views
Source: Continuum Economics
Eurozone: …Into the Fire!First the good news; the EZ economy has seen a number of positive developments in recent months, most notably being the drop back in benchmark gas prices back below pre-war level

Energy War and European Markets

September 5, 2022 1:21 PM UTC

Market Implications: Market expectations that the ECB will lift the deposit rate to 2% by early 2023 look overdone, as a EZ recession will reduce underlying inflation pressures; labor market flexibility avoids a EZ wage inflation problem and the Euro will likely avoid a downward spiral as fiscal sup

Electric Shock for European Leaders

August 26, 2022 9:33 AM UTC

Figure 1: TTF Gas Prices and German Electricity Prices (Aug. 24, 2021 = 100)
Source: Bloomberg, Continuum Economics
Electricity Price Surge for Industry and Households
European industries are starting to balk at the huge surge in electricity prices now and in the near future (Figure 1), with intensiv

Eurozone: No Respite from ‘Weak’ Euro

August 25, 2022 11:48 AM UTC

Figure 1: Different Perspectives on Euro 'Weakness'
Source: Continuum Economics, ECB
The Euro in Different Guises?
Much has been said about the recent return of the euro to parity with the dollar. Few, however, are suggesting that this is unambiguous euro weakness, as the strength of the dollar is evid

Gas Price Surge on New Russia Supply Threats

August 22, 2022 2:03 PM UTC

Figure 1: Europe and Japan/South Korea Gas Prices (Dec. 31, 2021 = 100)
Source: Datastream
Russia Supply Problems into the Autumn
Russia has announced a 3-day shutdown of Nord Stream 1 from Aug. 31, which has sent European gas prices surging as worries grow that the shutdown could be extended or tha

Eurozone Consumer Feeling the Heat

August 15, 2022 1:59 PM UTC

Figure 1: Eurozone HICP Forecast Change (% chg y/y)
Source: Continuum Economics
Stinging Without the Rain?
After COVID and then the Ukraine war, a further external shock is hitting the EZ economy, in the form of the drought caused by a wave of high temperatures and a lack of rainfall through much of Eu

Italy: Will Putin’s Shadow Hang over Election?

August 2, 2022 1:09 PM UTC

Figure 1: Opinion Polls May Swing Further in Coming Weeks
Source: Politico
Politics Still in Flux
According to current opinion polls, Forza Italia and Matteo Salvini's League will do well enough in the election to be minor partners to their fellow right-wing party the Brothers of Italy in forming a gov

Eurozone: Recession Risks Dominate despite Q2

July 29, 2022 11:04 AM UTC

Figure 1: GDP Forecast Change (% chg y/y)
Source: Continuum Economics
Some Positives but More Negatives?
There were some positive signs in the array of GDP numbers released today, with upside surprises in all but one of the four major economies. In Germany, data was as expected but with marked cumulati

ECB: Rear Mirror Replaces Forward Guidance

July 27, 2022 2:08 PM UTC

Figure 1: Markets Rethinking ECB Outlook
Source: Bloomberg. Implied ECB deposit rate one year ahead
Faster Not Further
We have now formally adjusted our ECB outlook to chime with the thinking laid out in our recent ECB review. As such, we envisage that September will see a 25 bp hike. The risk is that