European Central Bank

View:

February 13, 2025

...
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

...
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

...
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

...
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

...
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 31, 2025

...
German Data Review: Mixed Inflation News but Politics Dominate?
Paying Article

January 31, 2025 1:28 PM UTC

As Germany faces possibly deeper and more prolonged political deadlock, its disinflation process continues, but there are signs that the downtrend is flattening out and this may be the message into the rest of 2025. Indeed, January HICP inflation stayed at 2.8% an outcome largely as expected.   Bu

January 30, 2025

...
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

...
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

...
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

...
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

...
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

...
German Data Preview (Jan 31): Services Inflation Slows Belatedly?
Paying Article

January 22, 2025 2:09 PM UTC

Germany’s disinflation process continues, but there are signs that the downtrend is flattening out and this may be the message into the rest of 2025.  After a largely energy but a still relatively broad rise to an 11-mth high of 2.8% in December, we see the rate down 0.2 ppt to 2.6% in the prelim

...
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

...
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

...
BOE QT: A Heavier Burden than Fed/ECB QT
Paying Article

January 16, 2025 11:05 AM UTC

BOE QT is 3.4% of GDP and means the 2025 total funding is 8% of GDP, which helps explain part of the current pressure on gilt yields (here).  This pace is unlikely to change before the BOE review in September 2025, but the QT is partial monetary tightening and will offset some of 125bps of BOE rate

January 14, 2025

...
U.S. Yields Drag Germany and France Higher
Paying Article

January 14, 2025 8:15 AM UTC

The EUR real exchange rate is well above the 2014 low, while ECB officials are guiding that more rate cuts are coming.  2yr German yields are unlikely to rise much further and will likely come back down in Q2 (here).  A January 30 ECB cut will likely build more easing expectations, though more of

January 10, 2025

...
U.S. Treasuries versus Bunds and Gilts
Freemium Article

January 10, 2025 8:10 AM UTC

·        UK Gilts have been dragged higher by rising Treasuries and market concerns that BOE rate cuts will be limited (here), while 10yr Bund yields have also been dragged higher by Treasuries concerns on Fed rate cuts/budget deficit and tariffs.  Multi quarter we see this as overdone. We

December 31, 2024

...
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

...
German Data Preview (Jan 6): Services Inflation Slips?
Paying Article

December 31, 2024 9:53 AM UTC

Germany’s disinflation process continues, with the y/y HICP headline stable at 2.4% in the November estimate, lower than widely expected, albeit where the CPI counterpart rose 0.2 ppt to 2.2%.  This was again in spite of apparently stable or resilient services inflation.  Even so, the core HICP

December 19, 2024

...
DM Rates Outlook: Policy and Spread Divergence
Paying Article

December 19, 2024 12:07 PM UTC

•    2yr U.S. Treasury yields can decline initially as the Fed finishes easing (Figure 1), but as the sense grows that the rate cut cycle is stopping, we see the 2yr swinging to a small premium versus the Fed Funds rate – as the market debates the risks of a future tightening cycle.  For 10y

December 17, 2024

...
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

...
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 05, 2024

...
France: A Political Crisis But Not (Yet) a Fiscal One
Paying Article

December 5, 2024 8:56 AM UTC

With a parliamentary no-confidence vote having toppled the Barnier administration convincingly, France has no government.  This far from unexpected development is a political crisis and one that even without the fiscal cuts that the failed Budget envisaged is likely to mean that the country also fa

December 04, 2024

...
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

...
France: The Beleaguered Consumer Hit Further by Fiscal Impasse
Paying Article

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

...
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

...
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

...
German Data Review: Services Inflation Persists?
Paying Article

November 28, 2024 1:40 PM UTC

Germany’s disinflation process continues, albeit with the y/y HICP headline stable at 2.4% in the preliminary November estimate, lower than widely expected, but where the CPI counterpart rose 0.2 ppt to 2.2%.  This was again in spite of apparently stable or resilient services inflation (Figure 1)

...
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

...
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

...
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

...
German Data Preview (Nov 28): Services Inflation Persists?
Paying Article

November 20, 2024 3:58 PM UTC

As we have repeatedly underlined, Germany’s disinflation process continues but unevenly.  After July saw the headline HICP rate rise and unexpected 0.1 ppt to 2.6%, unwinding a third of fall seen in June, it plummeted to a 41-month low of 2.0% in August, and then down to 1.8% last month, below th

...
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

...
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

...
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

November 07, 2024

...
Germany: More Headwinds for an Ailing Economy?
Freemium Article

November 7, 2024 9:10 AM UTC

After months of clear internal tensions, the three-party coalition collapsed on Wednesday after Chancellor Olaf Scholz (Social Democrat) sacked Finance Minister Christian Lindner (leader of the Free Democratic Party (FDP).  The two had been seeing repeated rifts on spending and economic reforms, wi

October 31, 2024

...
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

...
German Data Review: Services Inflation Persists?
Freemium Article

October 30, 2024 3:35 PM UTC

Germany’s disinflation process continues but unevenly.  After July saw the headline HICP rate rise and unexpected 0.1 ppt to 2.6%, unwinding a third of fall seen in June, it plummeted to a 41-month low of 2.0% in August, and then down to 1.8% last month, below the ECB target and well below expect

...
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

...
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

...
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

...
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 21, 2024

...
German Data Preview (Oct 30): Inflation Stays Under Target?
Freemium Article

October 21, 2024 1:59 PM UTC

Germany’s disinflation process continues.  After July saw the headline HICP rate rise and unexpected 0.1 ppt to 2.6%, unwinding a third of fall seen in June, it plummeted this month to a 41-month low of 2.0% in August, and then down to 1.8% last month, below the ECB target and well below expectat

October 17, 2024

...
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

...
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

...
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

...
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

...
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

...
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 25, 2024

...
German Data Preview (Sep 30): Inflation Under Target?
Freemium Article

September 25, 2024 11:15 AM UTC

Germany’s disinflation process continues.  After July saw the headline HICP rate rise and unexpected 0.1 ppt to 2.6%, unwinding a third of fall seen in June, it plummeted this month to a 41-month low of 2.0% in August, ie consistent with the ECB target and well below expectations.  Indeed, the C