In one line: The headline has peaked, but the core hasn’t, and that’s a problem for the ECB.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: President Lagarde hints at more hikes post March but keeps cards close to her chest on number and size.
Melanie Debono (Senior Eurozone Economist)Eurozone
In one line: At least one more 50bp hike is on the way; no change to QT plans.
Melanie Debono (Senior Eurozone Economist)Eurozone
In one line: Soft CPI, partly due to the 2023 change in weights.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The new Italian government needs to be careful if it wants to avoid a U.K.-style market meltdown.
- The SNB has been intervening in FX markets again; we doubt it wants CHF 0.95 per euro forever.
- The EU agrees to disagree on a joint response to the energy crisis, as Germany draws more criticism.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- We detect no push-back from ECB policymakers against the idea of a 75bp rate hike next month.
- The ECB is clear in its message; higher rates are needed to reduce demand in line with supply.
- Quantitative tightening makes little sense in the EZ, but the discussion has started, all the same.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The EZ composite PMI sank further in September, consistent with GDP falling in the third quarter
- Supply-side tensions eased in September, but higher energy costs drove a rise in input price inflation.
- Markets look for the ECB deposit rate to end 2022 at 2.25, with 75bp more in 2023; that's too much.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The Eurozone’s current account swung to a big deficit in July, playing catch-up with Eurostat’s data.
- Currency weakness is still mainly increasing the cost of imports; but exports will benefit, eventually.
- Portfolio in-and outflows are collapsing, and we think this trend has further to run.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- EZ construction output rose slightly in July, but we doubt this is the beginning of a sustained rebound.
- Survey data suggest that construction will weaken further in the third quarter, after a soft Q2.
- Private sector construction will be hit by rising rates; civil engineering should be more resilient.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- A further leap in core inflation in September will push the ECB to deliver another 75bp hike next month.
- Energy inflation is now falling, slightly, but it won’t prevent the headline from rising again in September.
- Disinflation in oil products is accelerating, but gas and electricity prices still have further to rise.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The rise in inflation since the SNB’s last meeting means it will surely raise rates on September 22.
- The ECB went big last week; the SNB will follow suit as it seems happy with current franc strength.
- In Q4 we think the SNB will hike by 50bp, much less than the 125bp we expect from the ECB.
Melanie Debono (Senior Eurozone Economist)Eurozone
- The EZ economy grew by 1.0pp more than the ECB expected in H1, supporting a 75bp hike today.
- Consumers’ spending rose strongly in Q2, even as real wages fell; that won’t be repeated in H2.
- Inventories and net trade will be a drag on growth in H2, helping to push the EZ economy into recession.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- We look for a 75bp hike from the ECB this week, but the consensus is evenly split between this and 50bp.
- Ms. Lagarde will be asked about the terminal and neutral rates; will she get pinned down on a number?
- Factory orders in Germany fell further in July, and turnover points to a decline in production.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The surge in gas prices adds to our conviction that inflation will remain high, despite a hit to EZ activity.
- A probable EZ recession is weighing heavily on the outlook for Switzerland’s economy in H2.
- EZ investor sentiment tumbled in September; it will sour further as the ECB continues to hike.
Melanie Debono (Senior Eurozone Economist)Eurozone
The slide in the Composite PMI to an 18-month low now points to downside risks to our Q3 GDP call.
The steep decline in demand and easing hiring intentions suggest the worst is yet to come.
The fall in the EURUSD will catch the ECB’s attention, but will have little impact on core inflation.
Melanie Debono (Senior Eurozone Economist)Eurozone
