European Central Bank

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July 03, 2025

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June ECB Council Meeting Account Review: Divides Continue if Not Widen
Paying Article

July 3, 2025 12:24 PM UTC

The account of the June 3-5 Council meeting just about left the door  open for a move at the July 24 policy verdict given the array of news (probably negative particularly regarding tariffs but also bank lending) due beforehand.  But the account adds to the impression we has initially that a pause

July 02, 2025

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DM Central Banks: Overlooking Lagged 2021-23 Tightening and QT?
Paying Article

July 2, 2025 8:30 AM UTC

We are concerned that DM central banks are underestimating the lagged impact of 2021-23 tightening and ongoing QT, which impacts the transmission mechanism of monetary policy.  Central banks need to consider cyclical and structural issues, but also need a more rounded view of the stance and implica

July 01, 2025

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EZ HICP and ECB Strategy Review: Headline Up to Target as Services Inflation Rises Back?
Freemium Article

July 1, 2025 9:32 AM UTC

Despite its updated its monetary policy strategy detailed yesterday, inflation – now at target – is very much a side issue for the ECB at present, albeit with oil prices possibly accentuating Council divides.  Admittedly, the flash June HICP rose a notch to 2.0% matching the -consensus, but up

June 30, 2025

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German Data Review: Services Dip Further Despite Calendar Effects?
Freemium Article

June 30, 2025 12:30 PM UTC

Germany’s disinflation process continues, with the lower-than-expected June preliminary numbers refreshing and reinforcing this pattern, with a 0. Ppt drop to 2.0%, a 10-mth low (Figure 1)!  Previously but there have been signs that the downtrend was flattening out and this impression may have be

June 24, 2025

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EZ HICP Preview (Jul 1): Headline Stays Below Target as Services Inflation Rises Back?
Paying Article

June 24, 2025 8:57 AM UTC

Inflation – now below target – is very much a side issue for the ECB at present, albeit with oil prices possibly accentuating Council divides.  Indeed, we see the flash June HICP staying at May’s below-consensus, eight-month low and below-target 1.9% (Figure 1).  More notably, having jumped

June 23, 2025

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German Data Preview (Jun 30): Calm Before the Storm?
Freemium Article

June 23, 2025 10:29 AM UTC

Germany’s disinflation process continues, but there have been signs that the downtrend was flattening out and this impression may have been accentuated by the small and lower than expected (ie 0.1 ppt) drop in the headline in May to 2.1%, still an eight-month low (Figure 1).  Adjusted data also s

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DM Rates Outlook: Yield Curve Steepening?
Paying Article

June 23, 2025 8:30 AM UTC

•    We see the U.S. yield curve steepening in the next 6-18 months. 2yr U.S. Treasury yields can step down with cautious Fed easing on a modest/moderate growth slowdown and also if the Fed keeps an easing bias in H2 2026. 10yr U.S. Treasury yields face a tug of war between lower short-dated y

June 20, 2025

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Eurozone Outlook: In Tariff Limbo Land?
Paying Article

June 20, 2025 9:24 AM UTC

·       Amid what may still be tightening financial conditions and likely protracted trade uncertainty, we have pared back the EZ activity forecast for 2026. However, the picture this year appears to be slightly better but this is largely a distortion and we think that the economy has instead

June 10, 2025

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ECB: Time to Reassess and Slow QT?
Freemium Article

June 10, 2025 2:25 PM UTC

Further ECB easing is on the cards, the question being whether this should start to encompass toning down quantitative tightening (QT) plans too! Notably, the two ppt fall in the discount rate cuts has come against a backdrop where the ECB has continued unconventional tightening by scaling back its

June 06, 2025

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Eurozone: The Tail Wagging the Dog?
Freemium Article

June 6, 2025 10:26 AM UTC

Given what now looks to have been an outstanding first quarter, the ECB’s assertion at this month’s Council press conference that it is a good position to navigate the uncertain conditions looks more tenable.  After all, GDP jumped 0.6%, twice the previous estimate.  But this is no indicator o

June 05, 2025

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ECB Council Meeting Review: Easing Window Stays Open
Paying Article

June 5, 2025 1:58 PM UTC

This widely seen 25 bp deposit rate cut (to 2.0%) now means the previous degree of tightening has been effectively halved.  Notably, it comes alongside an ECB policy and economic outlook/bias little changed from that of recent months.  The door is thus left open for a move at the July 24 policy ve

June 03, 2025

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EZ HICP and Labor Market Review: Headline Back Below Target as Services Inflation Reverses Easter Effect
Freemium Article

June 3, 2025 9:42 AM UTC

EZ HICP inflation met our below-consensus expectation in dropping to an eight-month low and below-target 1.9% (Figure 1) helped by rounding and a further m/m fall in fuel prices.  More notably, having jumped 0.5 ppt to 4.0% in April, very probably due to the impact of the timing of Easter affecting

May 30, 2025

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German Data Review: Lower Headline Services Surge Reverses
Freemium Article

May 30, 2025 12:47 PM UTC

Germany’s disinflation process continues, but there have been signs that the downtrend was flattening out and this impression may have been accentuated by the small and lower than expected (ie 0.1 ppt) drop in the headline in May to 2.1%, still an eight-month low.  Most notable amid a drop caused

May 28, 2025

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ECB Council Meeting Preview (Jun 5): Much Earlier Sub-Target Inflation Outlook?
Paying Article

May 28, 2025 2:30 PM UTC

What is widely seen as an eighth 25 bp deposit rate cut in the current cycle on June 5 may be overshadowed by the ECB’s implicit if not explicit shift about the outlook thereafter.  The door will be left open for a move at the July 24 policy verdict given the array of news (probably negative part

May 27, 2025

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EZ HICP and Labor Market Preview (Jun 3): Headline Back Below Target as Services Inflation Reverses Easter Effect?
Paying Article

May 27, 2025 11:17 AM UTC

Exceeding expectations, EZ HICP inflation failed to fall in April, instead staying at 2.2%.  More notably, services inflation jumped 0.5 ppt to 4.0%, very probably due to the impact of the timing of Easter affecting airfares and holiday costs. As already seen in flash French May numbers, and as was

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Eurozone: US Stepped-Up Tariff Threat – Negotiations or Concessions?
Freemium Article

May 27, 2025 9:22 AM UTC

At least within markets there is some relief that President Trump has deferred his ramped up 50% tariff threat from early June to July 9.  Unambiguously positive is the fact that a better line of communication, if not rapport, now seems to exist between the U.S. president and EU Commission Presiden

May 23, 2025

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Eurozone: Waging War on Wages
Freemium Article

May 23, 2025 1:35 PM UTC

After a protracted period of elevated EZ cost and price pressures, a reversal seems to be very much underway.  Headline and underlying HICP inflation have moved back toward target, but to reinforce this downtrend there are an increasing array of softer cost pressure signals.  ECB wage tracker and

May 22, 2025

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ECB April Account: Neutral Rate Not Necessarily a Terminal Rate
Paying Article

May 22, 2025 12:46 PM UTC

The account of the April 16-17 ECB Council meeting suggested that the policy decision was more of a clearly agreed consensus, this papering over continued divides regarding the outlook; the risks from tariffs; and where inflation risks lie.  The seventh and widely expected 25 bp deposit rate cut (w

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Eurozone: Services Offer Sobering News
Freemium Article

May 22, 2025 9:00 AM UTC

The May flash composite PMI data may have fallen into apparent contraction territory as the index dropped to 49.5 in May from 50.4 in April, below the 50.0 no-change mark for the first time in five months and thereby signalling a reduction, albeit a marginal one.  We do not take much issue whether

May 21, 2025

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German Data Preview (May 30): Lower Headline as Easter Effect Reverse Services Inflation Surge
Freemium Article

May 21, 2025 11:54 AM UTC

Germany’s disinflation process continues, but there have been signs that the downtrend was flattening out and this impression was accentuated by the small (ie 0.1 ppt) drop in the headline in April to 2.2%, still a seven-month low.  Most notable amid a drop caused by lower m/m fuel prices, was th

May 19, 2025

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Eurozone: The European Commission Diverges From the ECB on Inflation
Freemium Article

May 19, 2025 10:07 AM UTC

The European Commission (EC) Spring Forecast projects real EZ GDP growth in 2025 at 0.9%, some 0.4 ppt below its previous (autumn) view.   There is also a downgrade to the 2026 growth picture by 0.2 ppt to 1.4%, projections that carry downside risks and where we think they are still too optimistic

May 07, 2025

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Eurozone Labor Market: Rising Supply Adding to Lower Wage Pressures
Freemium Article

May 7, 2025 9:34 AM UTC

With the EZ jobless rate nestling at record lows, it would support the ECB assessment that the EZ labor market is strong, the central bank seeing only a small rise in the jobless rate this year and on to be reversed from early next year onwards.  However, that glosses over the fact that the labor m

May 02, 2025

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EZ HICP Review: Headline Fails to Fall as Services Inflation Rises on Easter Effect?
Freemium Article

May 2, 2025 9:46 AM UTC

EZ HICP inflation failed to fall back toward the 2% target in flash April data, instead staying at 2.2%.  More notably, services inflation jumped 0.4 ppt, very probably due to the impact of the timing of Easter affecting airfares and holiday costs. As was the case when this Easter effect last happe

April 24, 2025

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EZ HICP Preview (May 2): Headline Lower Again But Mainly Energy?
Paying Article

April 24, 2025 8:39 AM UTC

EZ HICP inflation is likely to fall back to the 2% target in flash April data, this six-month low would largely reflect a fall in fuel prices, but with services largely consolidating the clear fall seen last time around (Figure 1).  All of which would mean a stable core reading of 2.4% but where th

April 23, 2025

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Eurozone Flash GDP Preview (Apr 30): The Calm Before the Storm that Surveys May Be Flagging?
Freemium Article

April 23, 2025 9:18 AM UTC

Continuing a series of upside surprises, EZ GDP overshot both consensus and ECB expectations in Q4), albeit only after what was a cumulative 0.2 ppt upward revisions compared to the flash. We see a further rise in Q1 data (Figure 1), partly reflecting recent m/m increases in both manufacturing and s

April 22, 2025

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German Data Preview (Apr 30): Lower Headline Amid Stable Services Inflation?
Freemium Article

April 22, 2025 1:16 PM UTC

Germany’s disinflation process continues, but there had been signs that the downtrend was flattening out but this changed somewhat in February and again in the March. Indeed, HICP inflation fell back from 2.6% to 2.3% in March, this despite a pick-up in food inflation in both months.  Notably the

April 17, 2025

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ECB Review: Discussing Policy Restriction No Longer Appropriate
Freemium Article

April 17, 2025 1:48 PM UTC

A seventh and widely expected 25 bp deposit rate cut was overshadowed by the ECB’s communication shift about the outlook hereafter, no longer talking about how restrictive policy may be.  This shift is entirely appropriate not least given the manner in which financial conditions are now tightenin

April 15, 2025

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Eurozone Banks Offer ECB More Cause for Concern
Freemium Article

April 15, 2025 11:14 AM UTC

The ECB can draw comfort from signs that credit demand and supply for EZ households continues to improve.  But the ECB’s latest bank lending survey (BLS) also offers worrying signs in regard to firms as well as questioning the alleged neutrality of the QT program.  It shows a further (admittedly

April 09, 2025

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ECB Preview (Apr 17): Deeper Cuts on Trade Tariffs Broadening Impact
Freemium Article

April 9, 2025 8:03 AM UTC

It is surely not a question of whether the ECB cuts rates again at its Apr 17 decision, but what it communicates about policy thereafter.  Not least given the manner in which financial conditions have tightened, the then-notable change in rhetoric last month to suggest the policy stance had become

April 03, 2025

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ECB March Meeting Account – More Focus on Downside Risks than those on the Upside?
Freemium Article

April 3, 2025 2:22 PM UTC

The Account of the Governing Council meeting on 5-6 March 2025 seemingly dwelt more on the downside risks posted by trade uncertainties than the upside risks posed by fiscal expansion plans across much of the EU.  It noted that not all members supported the proposal to lower the three key ECB inter

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U.S. Tariffs - the EZ/EU Response?
Paying Article

April 3, 2025 10:24 AM UTC

The U.S is imposing a widespread tariff on the EU of 20%, higher and broader than expected, this based on U.S. calculation of an effective tariff rate of in effect 39 per cent, a figure the EU puts at about 1 per cent.  Moreover, rather than including factors such as VAT, and hygiene restrictions o

April 01, 2025

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EZ Data Review: Headline Edges Lower Again With Friendlier Services and Labor Market Messages?
Freemium Article

April 1, 2025 9:45 AM UTC

Largely as expected, there was more supportive news in the March flash HICP numbers (Figure 1), with the headline down a notch and core down 0.2 ppt (the former to 2.2% and hence the lowest since last autumn).  Perhaps more notably services inflation slowed more clearly, dropping 0.3 ppt to 3.4%, a

March 31, 2025

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German Data Review: Lower Headline Amid Clearer Drop in Services Inflation
Freemium Article

March 31, 2025 12:14 PM UTC

Germany’s disinflation process continues, but there had been signs that the downtrend was flattening out but this changed somewhat in February and again in the March preliminary numbers. Indeed, HICP inflation fell back from January’s 2.8% to a 3-mth low of 2.6% last month and then to 2.3% in Ma

March 25, 2025

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German & EZ HICP Preview (Mar 31/Apr 1): Headline Edges Lower Again With Friendlier Services Messages?
Freemium Article

March 25, 2025 1:43 PM UTC

February HICP inflation numbers did deliver better news and broadly and less marginally so after revisions with the headline dropping 0.2 ppt to an as-expected 2.3%.  This ended a run of three successive rises and came about despite a rise in food inflation.  Regardless, the core also eased 0.1 pp

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DM Rates Outlook: Policy Divergence
Paying Article

March 25, 2025 9:30 AM UTC

 •    2yr U.S. Treasury yields can step down with cautious  Fed easing on a modest/moderate growth slowdown and also if the Fed keeps an easing bias. 10yr U.S. Treasury yields can be helped by this easing and see a move down through 2025.  However, the budget deficit will likely be 6.5-7.0%

March 24, 2025

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Eurozone Outlook: At A Crossroads?
Paying Article

March 24, 2025 10:45 AM UTC

·       For once in a long while, we have upgraded the EZ activity forecast and for 2026 actually to a notch above consensus thinking. However, the current backdrop still suggests that while the economy has been growing afresh it is doing so timidly, with downside risks persisting more clearl

March 18, 2025

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Uncertainty Over Pace and Scale of Extra European Defense Spending
Paying Article

March 18, 2025 9:05 AM UTC

·       The crucial date for more clarity is the June 24-26 NATO summit.  Donald Trump might attend but will ask for more spending.  NATO head Rutte’s desire is for above 3% of GDP for NATO countries, but the politics and budget suggest that a 2.5% minimum may only be agreed with Germany

March 14, 2025

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Germany: Breakthrough in Attempt to Unlock Debt Brake?
Paying Article

March 14, 2025 12:08 PM UTC

It does seem as if effective German Chancellor-elect Merz now has enough parliamentary support to amend the so-called debt brake and unlock more spending and borrowing to be directed toward added defense and infrastructure.  Thus, it does seem as if Germany and its economy are undergoing a sea-chan

March 06, 2025

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ECB Review: Disinflation Still On Track But Policy now ‘Work in Progress’
Paying Article

March 6, 2025 3:01 PM UTC

Unsurprisingly, the ECB verdict was less important that the rhetoric. A sixth 25 bp discount rate was widely expected – and delivered - to 2.5%, but how wide the door is left open for further cuts may be more opaque.  This both reflects gauging the extent of any lingering degree of policy restric

March 05, 2025

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EZ Bilateral Trade Nuances with the U.S. – Its Imports Not Exports
Paying Article

March 5, 2025 12:56 PM UTC

As the EU/EZ prepares for an almost certain trade spat if not trade war with the U.S. as the latter levies well-flagged and probably significant tariffs, we consider what is actually behind President Trump’s ferocity regarding bilateral trade.  As has been suggested widely, the EZ does not actual

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Germany Attempts to Unlock Debt Brake
Freemium Article

March 5, 2025 7:42 AM UTC

Germany’s likely new Chancellor Friedrich Merz has (and as has been flagged since his election win last week) announced plans to amend the country’s constitutional fiscal restraints, the so-called debt brake and within the confines of the current parliament.  Merz said Tuesday evening the motto

March 03, 2025

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EZ HICP Review (Mar 3): Headline Edges Lower With Friendlier Services Messages?
Freemium Article

March 3, 2025 4:17 PM UTC

February HICP inflation numbers may did deliver better news and broadly but only marginally so (Figure 1) with the headline dropping 0.1 ppt to a higher-than-expected 2.4%.  This ended a run of three successive rises and came about despite a rise in food inflation.  Instead, the core also eased’

February 28, 2025

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German Data Review: Stable Headline but Belated Drop in Services Inflation
Freemium Article

February 28, 2025 1:26 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, as was the case in January, HICP inflation stayed at 2.8% in February, a not

February 27, 2025

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ECB Preview (Mar 6): Gauging Restrictiveness as Policy to be Eased Further
Paying Article

February 27, 2025 1:55 PM UTC

As has been the case at most recent Council meetings, the ECB verdict is less important that the rhetoric. A sixth 25 bp discount rate is widely expected, to 2.5%, but how wide the door is left open for further cuts may be gleaned from any clear change in regard to how near(er) neutral policy the Co

February 26, 2025

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Eurozone: Gauging ECB Neutral Amid a Wandering R-Star
Freemium Article

February 26, 2025 12:14 PM UTC

It is clear that, especially with another official rate cut due at the looming ECB Council meeting (Mar 6), the existing debate about how restrictive policy will be may only intensify.  Indeed, the debate is already quite vocal, led by the hawks who are trying to argue for policy pause at least. 

February 25, 2025

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Eurozone: Wages – Good News Comes in Threes?
Paying Article

February 25, 2025 11:40 AM UTC

They say that good things often come in threes.  For the ECB, Q4 data on negotiated wages just released adds to both INDEED compiled wage indicator and the central bank’s own wage tracker data in suggesting softening if not very muted cost pressures, something we attribute to the rising EZ labor

February 24, 2025

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EZ HICP Preview (Mar 3): Headline Back Down With Friendlier Core Messages?
Paying Article

February 24, 2025 3:34 PM UTC

February HICP inflation numbers may deliver better news and broadly so (Figure 1) and thus contrast with the mixed messages in the higher-than-expected January flash HICP numbers.  Indeed, for a third successive month in January, the headline rose but by ‘only’ 0.1ppt, to a six-month high of 2.

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Germany: A New but Hampered Government
Freemium Article

February 24, 2025 8:53 AM UTC

The German election delivered few surprises with the electorate swinging even more clearly away from the political middle ground.  It clearly means that many difficult decisions lie ahead with questions over the effectiveness of the likely new government.  The result is only likely to inflame US c

February 21, 2025

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Eurozone: More Sobering Economic News
Freemium Article

February 21, 2025 10:21 AM UTC

The February composite PMI data may have not fallen (stable at 50.2) and the weaker-than-expected outcome was dominated by sharp addition weakness in France, but the data will be uncomfortable reading for the ECB.   The data very much suggest that the better news regarding EZ consumer spending see

February 20, 2025

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Bunds and ECB Easing/Trump Tariffs
Paying Article

February 20, 2025 8:03 AM UTC

          It is highly likely in April that the U.S. will announce a 25% tariff on EU cars and pharmaceuticals (here) and also reciprocal tariffs against the EU. The majority could be implemented given Trump’s desire to raise revenue/dislike of the EU as well as negotiate trade deals. This