France
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December 2, 2024 5:07 PM UTC
As France’s political deadlock intensifies amid a likely toppling of the fledgling government, markets are worried about the fiscal fall-out of what may at best be emergency legislation, a so-called Special Law that would keep the country running, but with funding approved month by month. To som
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 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 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 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 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 21, 2024 7:06 AM UTC
Much uncertainty still exists on policy but in 2025 the EU will likely be under pressure from targeted new tariffs by the Trump administration, while also being asked to spend more on defense spending. Purchasing extra LNG and military hardware from the U.S. is one way towards a potential trade de
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 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 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 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 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 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 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 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 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 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 13, 2024 12:22 PM UTC
• We see the recent market turbulence as being partially a reduction in risky positions. However, the U.S. economy is slowing and triggering a debate about a soft or harder landing (we see slowing rather than recession in our baseline), while EZ data shows the recovery is not gaining moment
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 9:36 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