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
- The EU’s new gas price cap is an insurance policy against further price surges; it will not lower prices...
- ...As a result, its impact on inflation will be nil in the absence of a renewed jump in wholesale costs.
- EZ current account data show that the EZ terms of trade shock from the war in Ukraine is easing, a bit.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- Tighter-for-longer ECB policy leads us to downgrade our GDP estimates, through 2024.
- We now look for GDP growth of 0.5% in 2023 and 1.5% in 2024, both are 0.3pp lower than previously.
- Economic growth should pick up in 2025, as the ECB will now also likely cut rates further in 2024.
Melanie Debono (Senior 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
- Ownership data suggest Spanish households are most exposed to rising mortgage rates.
- But even in France, where fixed-rate mortgages are most common, households are not immune.
- Still, a raft of insolvencies will be kept at bay by fiscal policy and bank mortgage relief, even in Spain.
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
- Swiss inflation fell again in October, and all signs point to it sliding below the SNB’s estimates in Q4.
- We look for the SNB to hike just once more, taking the key policy rate to only 1.0%.
- The EZ labour market took the slowdown in Q3 on the chin, but surveys suggest resilience won’t last.
Melanie Debono (Senior Eurozone Economist)Eurozone
- The ECB lifts its deposit and refinancing rates by 75bp, hinting at a smaller hike in December.
- The retrospective change in TLTRO III conditions is a bad look for the ECB, but it likely was necessary.
- The slide in consumer confidence has ended; but don’t expect a sustained recovery until after winter.
Claus Vistesen (Chief Eurozone Economist)Eurozone
- The ECB will hike its deposit and refinancing rates by 75bp this week; anything else would be a shock.
- We think this is the last 75bp hike in this cycle, but we doubt the ECB will confirm this on Thursday.
- The ECB is under pressure to announce a new policy on reserve remuneration; the devil is in the detail.
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
