- The SNB cut interest rates, beating other major DM central banks to the punch on easing policy.
- More easing is likely over the coming year; we look for 75bp of further cuts by December.
- The risks are to fewer cuts; the SNB sees inflation in line with its price-stability mandate out to 2026.
Melanie Debono (Senior Eurozone Economist)Eurozone
In one line: On track for a rise in Q1, surprisingly.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Recovery in Italian industry is delayed.
Melanie Debono (Senior Eurozone Economist)Eurozone
- It’s a close call, but we think the SNB will hold fire at today’s meeting and first cut in June instead.
- Risks are tilted towards a rate cut today; markets are pricing in 40% probability of a move.
- mItalian industrial production started the year on a weak footing, but EZ construction is holding up.
Melanie Debono (Senior Eurozone Economist)Eurozone
In one line: Investor sentiment is still rising; a dovish plunge in EZ labour cost growth.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Hourly labour cost growth took a leg down in Q4, in line with other wage growth measures.
- Leading indicators suggest pay growth is easing again in Q1; we look for it to fall throughout 2024.
- The ECB can’t afford to wait for the all clear from wage negotiations to start easing policy.
Melanie Debono (Senior Eurozone Economist)Eurozone
In one line: Falling imports are still lifting EZ net trade in goods.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Next couple of months’ data will be more noise than signal.
Melanie Debono (Senior Eurozone Economist)Eurozone
- EZ inflation dipped in February, matching the first estimate; upside risks are now building for March.
- An upward surprise in the March and April inflation reports would put a June rate cut in jeopardy.
- We still struggle to see a perfect landing for inflation at 2%; how will the ECB respond to this?
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: The core is on track for sub-2%, despite sticky services inflation.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Interest-rate and core-inflation differentials still point to upside risks for EURUSD.
- We continue to believe EURUSD is good value below 1.10; a rise to 1.15 should be possible.
- Spain will continue to outperform despite the government ditching its attempt to set a budget.
Melanie Debono (Senior Eurozone Economist)Eurozone
- Inflation at 3% in Q2 likely will prevent ECB easing in June; a 50-to-75bp cut would need inflation at 2%.
- Sticky wage growth remains a risk to ECB cuts, but we think the Q1 numbers will play ball.
- It would require significant outliers in the non-HICP numbers for the ECB’s near-term path to change.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- European defence spending is ramping up and is set to double by 2026, in nominal terms.
- Europe needs to help Ukraine beat Russia, as well as rebuild its own military; the EU is here to help.
- Joint EU debt issuance to finance defence spending is coming; €100B-to-200B would be a good start.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: The core is sticky, but will fall back soon; beware an incoming rebound in food inflation.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The BTP-Bund spread has fallen, in line with our call; we still believe it will hit 100bp by year-end.
- Will the attractive carry maintain foreign investor appetite for BTPs in 2024? We think so.
- Assuming no fiscal disasters, BTPs will continue to close the gap to their Spanish counterparts.
Melanie Debono (Senior Eurozone Economist)Eurozone
- Comments from ECB policymakers are keeping hopes of an April rate cut alive, but we still see June.
- The bar is high for the March HICP to deliver a down- side surprise big enough for the ECB to cut in April.
- We think bond yields will drift lower over the summer, before an inflection point in late Q3.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: GDP went nowhere last year; slowing wage growth supports June ECB rate cut.
Melanie Debono (Senior Eurozone Economist)Eurozone
In one line: Still on a downtrend, but the outlook is getting brighter.
Melanie Debono (Senior Eurozone Economist)Eurozone
