- The ECB faces a unique challenge in thinking about fiscal policy; fiscal tightening is now lifting inflation.
- We estimate that the unwinding of fiscal stimulus is now boosting EZ headline inflation by 0.4pp...
- ...In a fight for every percentage point to get inflation to target, this could prevent ECB rate cuts.
Melanie Debono (Senior Eurozone Economist)Eurozone
In one line: The SNB beats the ECB to the punch on rate cuts.
Melanie Debono (Senior Eurozone Economist)Eurozone
- 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: 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
- 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: Next couple of months’ data will be more noise than signal.
Melanie Debono (Senior 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
- 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
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
- Quarter-to-quarter GDP growth in Italy will pick up pace this year, despite falling investment...
- ...But our forecasts still point to GDP rising by just 1.0% this year, the same as last year.
- The risks to our call are a bigger fall in capex than we expect, and a smaller increase in consumption.
Melanie Debono (Senior Eurozone Economist)Eurozone
In one line: One for the hawks; slowdown easing quicker than previously thought and price intentions rise.
Melanie Debono (Senior Eurozone Economist)Eurozone
- Swiss inflation edged down in February; it has been in line with the SNB’s target for eight months.
- It fell less than we expected; we are pushing out our forecast for the first SNB rate cut to June.
- The changing of the guard at the SNB in September won’t alter the outlook for monetary policy.
Melanie Debono (Senior Eurozone Economist)Eurozone
In one line: Investor sentiment remains a bright spot.
Melanie Debono (Senior Eurozone Economist)Eurozone
In one line: Falling output in France and Germany is holding back the recovery.
Melanie Debono (Senior Eurozone Economist)Eurozone
In one line: German inflation likely fell a touch more than we thought in February.
Melanie Debono (Senior Eurozone Economist)Eurozone
