- Falling oil prices and a strong euro are playing into the hands of ECB doves, for now.
- Services inflation is a key upside risk in the June HICP, but we still see core inflation at 2% by August.
- Fiscal details and a US-EU trade deal could swing the September meeting in favour of ECB hawks.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Stuck in the mud, but also underestimating growth.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- A firm commitment from Germany to spend 5% of GDP on defence would be a rug-pull for Bunds.
- Rising investor sentiment and calmness on the trade front point to decent June survey data this week.
- Early-Q2 data indicate upside risk to GDP growth in France, but we still look for just 0.1% q/q.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: A September cut is still on, but the ECB will end up regretting it.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The EZ current account surplus crashed in April, pulled lower by net trade in goods and services.
- Portfolio in- and outflows in the Eurozone remain strong, but both are now likely peaking.
- Final EZ HICP data leave intact yesterday’s forecast update, save for a small revision to inflation in 2025.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Inflation in the EZ will settle at 2.0% over the summer, with the core also hitting 2% by August…
- …This should be enough for a final 25bp ECB rate cut in September, to 1.75%, setting up hikes next year.
- We’re lowering our inflation forecasts for 2026, but we’re still well above the ECB’s June projections.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The SNB is sure to ease this Thursday, and more analysts have joined us in expecting a sub-zero rate.
- Strength in EURUSD is supported by leading indicators, but the recent rally will fade soon.
- Disinflation in core goods from EURUSD at 1.15 is trivial, despite the ECB’s stringent forecast rules.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- EZ industrial production fell in April, as goods exports retreated.
- The increase in tariff rates in April hurt exports, but the main hit came from fading tariff front-running.
- The risks to our calls for net trade and GDP in Q2 are to the downside.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- A drop in EZ headline inflation to 2.0% in May should be enough to pull a 25bp ECB rate cut over the line.
- The ECB’s 2026 HICP forecasts likely will determine whether doves get rates cut to 1.75% over summer.
- German retail sales fell in April, but the upturn in EZ real M1 growth accelerated further.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- EZ GDP was propelled higher in Q1 on the back of an upwardly revised Irish GDP figure...
- ...This was, in turn, down to tariff front-running practices, which will almost surely reverse in Q2.
- We are cutting our forecast for EZ Q2 GDP, but the strength in Q1 means our 2025 call is still up a tad.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Surprisingly strong, but the details are volatile.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The ECB cut the deposit rate by 25bp to 2.0%, as expected, but Ms. Lagarde signalled this is it.
- We still see a final 25bp cut, to 1.75%—now in September—but we’re less certain than before.
- The ECB’s new forecasts are very dovish on inflation and likely will have to be revised up in due course.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: All set for doves to take charge of ECB policy over the summer.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- EZ sovereigns have been largely spared in the global bond-market rout, but French bonds remain fragile.
- Foreigners own more than half of government bonds in France, with Japanese savings a key swing factor.
- We think Japan owns around €165B-worth of French government bonds, or 5% of French GDP.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Inflation in both the EZ and Switzerland fell below the respective central-bank targets in May.
- In the EZ, the decline solidifies the need for a rate cut this month, and we look for another one in Q3.
- In Switzerland, deflation is likely to become a mainstay, so brace for a 50bp rate cut from the SNB.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Upturn in money supply continues; Italian GDP on a solid footing in Q1.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Strong, but remember difference in base effects in the CPI and HICP.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Consumption growth will slow in Q2.
Claus Vistesen (Chief Eurozone Economist)Eurozone
