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

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

German Data Preview (Jul 30): Inflation Stable Ahead of Fresh Fall in Coming Months?

July 22, 2024 3:10 PM UTC

Base effects have caused the German disinflation process not to be smooth and this was even more clearly the case in recent numbers where after a second successive and slightly larger rise in the headline HICP rate occurred rising 0.4 ppt to 2.8% in May was followed by a drop back to 2.5% in June, 0

ECB Review: Policy Window Stays Very Open

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

Eurozone Banks See Consumer Loan Demand Recover

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

France in the Fiscal Firing Line

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

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

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

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

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

France Gets PPP - Protracted Policy Paralysis?

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

ECB: Council Policy Reservations Deeper Than Expected?

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

EZ: Is the Labor Market Starting to Labor?

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

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

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

German Data Review (Jul 1): Inflation Moves Back Down

July 1, 2024 12:28 PM UTC

Base effects have caused the German disinflation process not to be smooth and this was even more clearly the case in the May numbers where a second successive and slightly larger rise in the headline HICP rate occurred rising 0.4 ppt to 2.8%, albeit a rise half that size seen in the accompanying CPI

France: Heading for Policy Paralysis?

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

Eurozone: Monetary Messages Gaining More Prominence?

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

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

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

German Data Preview (Jul 1): Inflation Moves Back Down And Broadly So?

June 24, 2024 10:57 AM UTC

As we have repeatedly underlined, base effects continue to distort the German HICP/CPI readings and the path down for inflation has not been smooth.  This was even more clearly the case in the May numbers where a second successive and slightly larger rise in the headline HICP rate occurred rising 0

DM Rates Outlook: Rate Cuts Arrive Except Japan

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

Eurozone Outlook: The Last (Disinflation) Mile

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

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

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

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

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

European Parliament Election: A Swing to the Right?

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

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

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%,

ECB Preview (June 6): D-Day

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

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

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

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

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

German Data Preview (May 29): Inflation to Rise Again Albeit Amid Soft Core Rate Trends?

May 21, 2024 2:08 PM UTC

As we have repeatedly underlined, base effects continue to distort the German HICP/CPI readings and the path down for inflation has not been smooth.  This will be even more clearly the case in the looming May numbers where a second successive and slightly larger rise in the headline rate is on the

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

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

France and Japan: Debt Fuelled Growth Problem

May 16, 2024 10:30 AM UTC

Most of the surge in debt/GDP in Japan and 40% in France is due to higher government debt and this should not be a binding constraint provided that large scale QT is avoided – we see the ECB slowing QT in 2025 and are skeptical about BOJ QT in the next few years.  The adverse impact of higher deb

Eurozone: Consumers - Still Missing?

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

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

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

German Data Review: Inflation Edges up Amid Less Resilient Services and Core Rate?

April 29, 2024 12:38 PM UTC

As we have repeatedly underlined, base effects continue to distort the German HICP/CPI readings, but the March data came in a notch below expectations for a third successive month.  Indeed, it fell from 2.7% to a 33-month low of 2.3% in the March HICP data, dominated by a clear fall in food inflati

Eurozone GDP Preview (Apr 30): Less Weak?

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

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,

Short-end European Government Bonds Following U.S. But June Decoupling

April 22, 2024 1:15 PM UTC

The Fed’s shift to higher for longer has spilled over to drag European government bond yields higher through April.  This now looks overdone as a June ECB rate cut is not fully discounted and ECB officials/data clearly point towards a 25bps cut.  UK money markets are more out of line, with a Jun

German Data Preview (Apr 29): Inflation Drop to Continue Amid Less Resilient Services?

April 22, 2024 12:58 PM UTC

As we have repeatedly underlined, base effects continue to distort the German HICP/CPI readings, but the March data came in a notch below expectations for a third successive month.  Indeed, it fell from 2.7% to a 33-month low of 2.3% in the March HICP data, dominated by a clear fall in food inflati

Markets: Fed Rather Than Middle East Worries

April 17, 2024 12:34 PM UTC

Global markets are being driven by a scale back in Fed easing expectations and we see a 5-10% U.S. equity market correction being underway.  However, with the market now only discounting one 25bps Fed cut in 2024, any downside surprises on U.S. growth or better controlled monthly inflation numbers

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

German Data Review: Inflation Drop Continues But Amid Still Resilient Services

April 2, 2024 12:19 PM UTC

As we have repeatedly underlined, base effects continue to distort the German HICP/CPI readings, but the March data came in a notch below expectations for a third successive month.  Indeed, it fell from 2.7% to a 33-month low of 2.3% in the March HICP data, dominated by a clear fall in food inflati

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

Asset Allocation: Pausing for Breath

April 2, 2024 9:00 AM UTC

Into Q2, data and policy (actual and perceived) will dominate DM markets. The ECB will likely take the spotlight with a 25bps cut on June 7, as the Fed face a better growth/more fiscal policy expansion and a tighter labor market than the EZ but also with a better productivity backdrop and outlook to

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

German Data Preview (Apr 2): Inflation Drop to Continue Amid Less Resilient Services?

March 26, 2024 10:58 AM UTC

As we have repeatedly underlined, base effects continue to distort the German HICP/CPI readings, but the January data came in a notch below expectations, and reversed half of the surge in the y/y rate seen in December.  And February data continued the downtrend, as the HICP rate fell from 3.1% to 2

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