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February 13, 2025

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Europe’s Ukraine Political Fallout and Market Hopes
Freemium Article

February 13, 2025 12:33 PM UTC

European politicians are surprised and angry at the U.S. stance on a peace deal for Ukraine and less military support for Europe, but eventually they will have to accept the new reality.  Europe is too divided to provide security guarantees to Ukraine on its own. A further increase and acceleration

February 11, 2025

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Europe’s Gas Problem Again?
Freemium Article

February 11, 2025 8:30 AM UTC

The ECB staff forecasts on March 6 will be revised upwards for 2025 and 2026, due to the surge in wholesale gas prices.  However, the ECB will likely take the view that 2 round effects from higher gas prices on balance are unlikely to boost core inflation (especially given wage tracker softness) an

February 07, 2025

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Eurozone: The Neutral Rate – Probably Little Changed Recently Unlike Central Banks
Freemium Article

February 7, 2025 1:14 PM UTC

A well-advertised research paper from the ECB suggests that the real neutral rate of interest for the EZ has not changed very much in the last few years but with a likely range of between -0.5% and +0.5%, but still well below estimates for what is so-called r* prior to the pandemic (Figure 1).  The

February 05, 2025

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Eurozone: Trump Taking Aim at the EU?
Freemium Article

February 5, 2025 9:06 AM UTC

President Trump has made it clear that the EU is going to face US tariffs in the not too distant future.  Admittedly, tariff threats have been used as the basis for negotiation elsewhere, this may be the case for the EU too – as was the case during Trump’s first term.  As for the EU, it does h

February 03, 2025

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EZ HICP Review: Headline Rises Amid Still Friendly Core Messages?
Paying Article

February 3, 2025 10:38 AM UTC

There were mixed messages in the higher-than-expected January flash HICP numbers.  For a third successive month, the headline but this time by ‘only’ 0.1ppt, to a six-month high of 2.5%, but where the core (again) stayed at 2.7%, partly due to what is seemingly relatively stable services inflat

January 30, 2025

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ECB Review: Policy Still Restrictive
Paying Article

January 30, 2025 2:34 PM UTC

It was always likely that the ECB verdict at this month’s Council meeting would be less resounding than that seen in December.  A fifth 25 bp discount rate cut did occur, to 2.75%, but may not have seen any demand to at least consider a larger move as was the case last month.  But the door is le

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Eurozone Flash GDP Review: Momentum Missing as Divergence Continues?
Paying Article

January 30, 2025 10:31 AM UTC

After a series of upside surprises, EZ GDP both weakened and undershot both consensus and ECB expectations in Q4 (Figure 1). There is a certain irony that for an ECB Council that has evidently shifted its main concern away from broadly falling inflation to real economy weakness, the soft Q4 GDP outc

January 29, 2025

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EZ Monetary Insight: Politics Making Banks More Risk Averse Accentuating EZ Divergences
Paying Article

January 29, 2025 11:01 AM UTC

Ahead of what seems to be a routine decision tomorrow, recent monetary data complicate the policy outlook for the ECB in the months ahead.  Positively, ECB compiled money data show discernible signs of as revival in bank lending, even for companies, although still hardly any growth in real terms. 

January 27, 2025

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EZ HICP Preview (Feb 3): Headline to Slip Amid Friendlier Core Messages?
Paying Article

January 27, 2025 11:42 AM UTC

There were mixed messages in the December HICP numbers.  For a second successive month, the headline rose 0.2 ppt, but to 2.4%, but where the core (again) stayed at 2.7%, partly due to what is seemingly stable services inflation.  Once again, higher energy costs, mainly base effects, were the main

January 24, 2025

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ECB Preview (Jan 30): A Staging Post in Easing Cycle
Paying Article

January 24, 2025 10:32 AM UTC

It is unlikely that the ECB verdict at this month’s Council meeting will be anything like as resounding as that seen in December.  A fifth 25 bp discount rate cut is virtually assured, to 2.75%, but may not see any demand to at least consider a larger move as was the case last month.  Admittedly

January 22, 2025

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Eurozone Flash GDP Preview (Jan 30): Are Surveys Too Gloomy?
Paying Article

January 22, 2025 11:33 AM UTC

There is certain irony that for an ECB Council that has evidently shifted its main concern away from broadly falling inflation to real economy weakness, its next policy decision arrives on the day of the next GDP release. We see the ECB cutting a further 25 bp but with some Council members again cal

January 16, 2025

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ECB December Council Meeting Account Review: The ‘Last Mile’ Appears to Have Shortened Somewhat?
Freemium Article

January 16, 2025 1:27 PM UTC

As the account of the December 11-12 Council meeting noted, a fourth 25 bp discount rate cut was agreed but there appeared to be a minority wanting a 50 bp move. But this account also shows some confusion as to just what the advertised change in forward guidance (in which the ECB accepts that on-tar

December 31, 2024

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EZ HICP Preview (Jan 7): Headline Higher Again, But Core Still Clearly Friendly?
Freemium Article

December 31, 2024 10:48 AM UTC

There were mixed messages in the November HICP numbers.  After a downward revision, and thus below consensus thinking, the headline rose 0.2 ppt to 2.2%, but where the core stayed at 2.7%, partly due to what is seemingly stable services inflation.  Higher energy costs, mainly base effects, were th

December 17, 2024

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Eurozone Outlook: Trump, Tariffs and the Possible Trade Tremor
Freemium Article

December 17, 2024 8:16 AM UTC

 ·       Once again, 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 more clearly into 2

December 12, 2024

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ECB Review: Clearly Flagging An End to Policy Restriction
Paying Article

December 12, 2024 3:02 PM UTC

A fourth 25 bp discount rate cut at this latest Council meeting, to 3%, was also the third in a row. But this meeting was important for the (as we expected) change in forward guidance in which the ECB accepts that on-target inflation is likely to be durable enough so that it no longer has to pursue

December 04, 2024

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ECB Preview (Dec 12): Flagging An End to Policy Restriction
Paying Article

December 4, 2024 3:53 PM UTC

While a larger move is possible, we think that the ECB will instead opt for a fourth 25 bp discount rate cut at this month’s Council meeting, to 3%. But this meeting may be as important for what may be a change in forward guidance in which the ECB accepts that on-target inflation is likely to be d

December 02, 2024

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Eurozone: What Services Inflation?
Paying Article

December 2, 2024 1:28 PM UTC

While real economy considerations seem to have taken over as the policy focus for the ECB majority, there are still some mutterings about apparent resilient services inflation. The latter is certainly the case when such inflation is measured on the conventional but possibly untimely y/y basis.  How

November 29, 2024

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EZ HICP Review: Headline Higher, But Core Messages Still Friendly?
Paying Article

November 29, 2024 11:04 AM UTC

There were mixed messages in the November flash HICP.  Matching consensus thinking, the headline rose 0.3 ppt to 2.3%, but where the core stayed at 2.7%, partly due to what is seemingly stable services inflation.  Higher energy costs, mainly base effects, were the main factor behind the rise back

November 28, 2024

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France Budget Deal or Crisis?
Paying Article

November 28, 2024 12:54 PM UTC

Concerns about the 2025 French budget failing have caused new spread widening for 10yr France v Germany.  What are the prospects?If the new and still very much minority government reaches agreement with National Rally and passes the 2025 budget, then it will produce some relief in markets but will

November 27, 2024

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Eurozone: Measuring Monthly GDP Highlights Growing Weakness
Paying Article

November 27, 2024 11:01 AM UTC

Getting a reliable coincident assessment of the EZ real economy, let alone any insight into the likely near-term outlook, is difficult.  EZ GDP data are prone to rapid revision, arrive only quarterly and only with a long lag offer detail from either the spending or output side that would allow a be

November 21, 2024

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EZ HICP Preview (Nov 29): Headline Higher, But Core Messages Still Friendly?
Freemium Article

November 21, 2024 9:59 AM UTC

Slightly higher energy costs were the main factor behind the rise back in HICP inflation in October to 2.0% having fallen to a well-below target 1.7% in the previous month (Figure 1).  The outcome was a little higher than expected, not least with another apparently resilient services inflation read

November 20, 2024

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Eurozone: ECB Stability Review Broadens the Case for Easier Policy
Freemium Article

November 20, 2024 11:30 AM UTC

It seems that worries about weaker growth are reverberating more discernibly and more broadly within the ECB.  Indeed, the worries may now be at least twofold. Clearly, weaker growth risks possible (added) downside risks to inflation, with BoI Governor Panetta yesterday warning that restrictive mon

November 18, 2024

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U.S.-Germany Yield Decoupling
Freemium Article

November 18, 2024 9:25 AM UTC

We see scope for 10yr German Bund yields to remain close to current levels in the next 1-2 years, despite our new forecast of rising U.S. Treasury yields (here[MG(1] ).  A weak economic recovery; fiscal consolidation rather than easing in the U.S. and less underlying inflation pressures should all

November 14, 2024

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ECB October Meeting Account: It’s the (Real) Economy Stupid!
Freemium Article

November 14, 2024 1:42 PM UTC

It is clear but hardly surprising that the ECB rate cut last month was driven as much, if not more by real economy consideration than prices or possible fiscal tightening.  The Oct account 16-17 suggested that the downside risks to the growth outlook in the September baseline, with the associated w

October 31, 2024

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EZ HICP Review: Headline Higher?
Freemium Article

October 31, 2024 10:42 AM UTC

Slightly higher energy costs were the main factor behind the rise back in HICP inflation in October to 2.0% having fallen to a well-below target 1.7% in the previous month (Figure 1).  The outcome was a little higher than expected, not least with another apparently resilient services inflation read

October 30, 2024

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Eurozone GDP Review: Consumer Revival, Surveys Gloomier?
Freemium Article

October 30, 2024 10:26 AM UTC

Even more clearly, the EZ economy is diverging as Germany stutters while Spain prospers.  However, the risks are that the whole of the EZ is weakening given the possibly gloomier messages from business survey data.  Admittedly, there were some upside surprises in the Q3 numbers, albeit with the un

October 24, 2024

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Eurozone Services Risks Clearer?
Freemium Article

October 24, 2024 10:13 AM UTC

It is clear that PMI data are a key component of the data analysis of the ECB. We are somewhat sceptical of the data, at least in its ability to track GDP growth coincidently and accurately.  But the data does offer a wide-ranging insight into private sector economic momentum.  With this in mind t

October 23, 2024

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EZ HICP Preview (Oct 31): Headline Up But Still Below Target and Backed Up By Softer Wages?
Freemium Article

October 23, 2024 9:20 AM UTC

Lower energy costs were the main factor behind the sharp fall in HICP inflation, which fell from 2.2% y/y in August to 1.7%, the latter revised down a notch from the flash estimate. This is the first sub-target reading since June 2021.  Services inflation also edged lower, this allowing the core ra

October 22, 2024

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Eurozone Q3 GDP Preview (Oct 30): (Near) Stagnation?
Freemium Article

October 22, 2024 12:02 PM UTC

At best, the EZ economy is diverging ever more clearly as Germany falters while Spain prospers.  However, the risks are that the whole of the EZ is weakening.  Indeed, in contrast to ECB and consensus thinking of a second successive quarter of 0.2% q/q GDP growth, we see a clear risk that the EZ e

October 17, 2024

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ECB Review: Inflation Outlook Lowered?
Freemium Article

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

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ECB to Note Better Signs in Bank Lending Survey?
Freemium Article

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

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France Debt: Non-Residents Budget Jitters
Paying Article

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

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ECB Preview (Oct 17): A Change of Tune, A Change of Rates
Freemium Article

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

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ECB October Rate Cut for Insurance
Paying Article

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

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EZ HICP Preview (Oct 1): Headline Back Below Target and Backed Up By Survey Signs?
Freemium Article

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 23, 2024

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Eurozone Outlook: Downside Risks or Downside Reality?
Freemium Article

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

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ECB Review: Under-Estimating Downside Risks?
Freemium Article

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 06, 2024

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Eurozone: Sobering Services and Domestic Demand News is Food for ECB Doves
Freemium Article

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 05, 2024

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ECB Preview: Growth Risks Debate Clearer?
Freemium Article

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 04, 2024

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Eurozone: Labor Market Faltering
Freemium Article

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

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EZ HICP Review: Disinflation Resumes Amid Services Resilience?
Freemium Article

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

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ECB: Life in the Not So Fast Lane!
Freemium Article

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

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ECB Policy Clues: July Accounts and Lane
Paying Article

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

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EZ HICP Preview (Aug 30): Disinflation Resumes?
Freemium Article

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

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EZ Growth Risks Increasing?
Freemium Article

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 05, 2024

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ECB: Between a Rock and a Hard Place?
Freemium Article

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

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EZ HICP Review: Disinflation Stalls?
Freemium Article

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

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Eurozone GDP Review: Conflicting Signals?
Freemium Article

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

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Eurozone Data Preview (Jul 30): Fading Momentum?
Freemium Article

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

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EZ HICP Preview (Jul 31): Disinflation Continues - Below-Target Rate Looming?
Freemium Article

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