In one line: CS problem is solved as far as the SNB is concerned; fight against inflation continues.
Melanie Debono (Senior Eurozone Economist)Eurozone
In one line: Markets believe the ECB is done; we don’t.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: Staying the course; a sustained rise in volatility is needed to prevent hikes in Q2.
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
- Italian bond yields offer an attractive carry, but yields are likely to stay high this year and next...
- ...Even if the spread to bunds falls, as we expect, assuming Italy doesn’t rock the boat with the EU.
- We expect BTP yields to rise to 4.35% by June, before easing back to 4.0% by year-end.
Melanie Debono (Senior Eurozone Economist)Eurozone
In one line: No near-term relief likely in core inflation.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: ECB hawks to markets; “we’re the captain now”.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: SNB pivots but signals more is to come; we have added another hike into the cycle.
Melanie Debono (Senior Eurozone Economist)Eurozone
- Economists’ forecasts for ECB policy rates beyond Q1 next year lack imagination, for good reason.
- A solid labour market and fiscal stimulus support the ECB’s sustained departure from the zero bound.
- Our new forecasts see a medium-term ECB policy rate at 1.8-to 2.0%, pointing to cuts in H1-2024.
Claus Vistesen (Chief Eurozone Economist)Eurozone
In one line: An early hint of slower rate rises; the ECB is incentivising banks to repay TLTRO III funds.
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
- Bond yields in Germany are rising at their fastest pace this side of reunification.
- The German 2s10s yield curve has collapsed to zero; we think it will invert soon.
- Normally, an inverted yield curve points to a policy mistake by the central bank, but not this time.
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 SNB joined the 75bp rate hike club yesterday; it won’t stay there for long.
- We expect a 50bp hike in December, taking the rate to 1.00%, and we think the Bank will pause in 2023.
- Unlike the ECB, the SNB is capping the amount of bank deposits that will benefit from higher rates.
Melanie Debono (Senior 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
- Our forecasts for ECB rates imply a rise in mortgage rates of over 400bp, raising the risk of defaults.
- Rising mortgage rates will mean house prices will be falling by around 1% year-over-year by end 2023.
- Higher risk is already discouraging banks from lending, but a credit crunch will likely be avoided.
Melanie Debono (Senior Eurozone Economist)Eurozone
