Ahmed Ibrahim’s Post

Schnabel and de Guindos reiterate risks to ECB inflation outlook after June: Traders currently pricing in 58 bps of ECB easing in 2024 versus 67 bps at the start of the week, following key PMIs and wage data. ECB has long pinned rate cut hopes on this crucial wage figure but has essentially committed to policy easing on 6-June, so the fresh number is more likely to influence policy decisions later in the year. Recent comments by ECB hawk Schnabel and Vice President de Guindos confirmed this scenario. However, both cautioned against easing policy too quickly, as some elements of inflation, like domestic and services inflation, remain persistent (ECB). De Guindos emphasized the need for a prudent approach due to uncertainties surrounding wages, productivity, geopolitical tensions, and potential risks from the commercial real estate sector and non-banking financial institutions (ECB). Both officials stressed the importance of monitoring data closely and maintaining credibility to avoid a wage-price spiral. While acknowledging progress, they highlighted potential headwinds, including weak economic activity, rising non-performing loans, and higher financing costs for banks.

The ECB’s preferred measure of euro-zone wages — also published Friday — accelerated at the start of 2024, another sign that price pressures in the region are proving stubborn. In the op-ed, Lagarde highlighted that consumer-price growth is on track to reach the 2% goal in the latter part of 2025 — with the ECB’s monetary policy “making a strong contribution“ to that. “So, by cutting rates, we decided to moderate the degree of monetary policy restriction,” she said. But the return to target “will not be an entirely smooth ride,” she said. “It needs vigilance, commitment and perseverance.” Future policy decisions will hinge on three factors — “whether we continue to see inflation returning to our target in a timely manner, whether we see overall price pressures easing in the economy, and whether we still see our monetary policy as effective in taming inflation.”  #inflation #interestrates #monetarypolicy #businessstrategy #investmentstrategy #labormarket

There are three factors to look out for in today’s ECB meeting. The first is staff projections on GDP growth, then any changes in communication from the policymakers, and finally, what economic conditions will result in a rate cut in June or maybe earlier. The key market drivers would be the ECB shifting to a balanced risk position or achieving its 2% inflation target earlier than expected. But, this sticky underlying inflation, mainly services inflation, uncertainty regarding wage developments, and the “confidence” in an economic rebound will prevent the ECB from cutting rates. If the ECB is not willing to accept that inflation is roughly returning to target but instead pushing for an exact landing point of 2%, rate cuts should not be on the agenda until the June meeting. There could be pressure on the euro today if there is a hint of an earlier cut.

A first cut in interest rates in June seems to become increasingly certain. Ahead of the monetary policy meeting of the ECB Governing Council this week, Volker Wieland pointed out that GDP deflator measures of domestic inflation may remain above target. In an interview with MNI News, he said that after June "one might question whether it's really so urgent to ease more soon." In his view, "it's not guaranteed that more cuts will follow right away." He added that "at this moment in time we know very little about where the real interest rate is going to be in the long run." According to Wieland, the level of rates seems to be enough to help inflation coming down. However, "we will have to see where wage settlements and actual wages end up." #inflation #monetarypolicy #ECB https://lnkd.in/eYNPjhgJ

What next for the ECB after today’s 25bp interest rate cut? It all comes down to services inflation. President Lagarde said previously that the ECB was watching three key indicators that influence services prices: wages, productivity, and margins. -> Wage growth is still high, but slowing – the ECB expects this slowing to continue, which should help ease labour-intensive services inflation. -> Productivity actually contracted last year, but was flat in the first quarter of 2024 – the ECB is hoping this picks up further, as stronger productivity helps offset high wage growth. -> And corporate margins are likely decelerating – good news for the ECB, who anticipated firms would absorb more wage increases as their pricing power declined. Given this picture, the ECB is feeling more comfortable that services prices should slow going forward. President Lagarde thus hinted that we could see further, gradual rate cuts this year. The ECB framed today's decision as getting rates ‘closer to normal’, rather than as major monetary easing, and is likely to do the same with any future cuts. Either way, lower rates would be especially helpful for the eurozone’s bank-lending dependent economy, one factor in our more positive outlook for the region this year.

ECB Held Rates Steady, Stressed Importance of Wage Growth in Next Decisions https://ift.tt/A2KeZiW As expected, the European Central Bank left interest rates unchanged in its announcement this week and refrained from providing future guidance. European Central Bank President Lagarde and policymakers unanimously agreed to keep the deposit facility rate at 3.75% and the main refinancing operation rate at 4.25%. They indicated in their official statement that: “Domestic price pressures remain elevated, services inflation has picked up, and headline inflation is likely to remain above target well into next year.” Link to the official European Central Bank monetary policy statement for July ECB officials also stressed their data-driven approach at each meeting, stressing that they are not pre-committing to a specific path for interest rates. During the press conference, Lagarde mentioned that the risks to the euro area growth outlook are tilted to the downside. She also introduced the idea of wage and profit productivity (WPP) in explaining how to monitor how labor costs evolve and their impact on overall inflation based on changes in productivity as economic growth slows. Link to ECB Governor Lagarde’s press conference Market Reactions Euro vs Major Currencies: 5 minutes Euro overlay against major currencies Chart by TradingView The euro, which had been moving cautiously in a narrow range ahead of the ECB decision, was almost unchanged during the actual announcement by the central bank as the decision to keep interest rates on hold was widely expected. The pair briefly dipped after the press conference, before eventually stabilizing and rising against most of its peers, except for the US dollar. EUR/JPY resumed trading above pre-ECB levels a few hours later, while EUR/NZD and EUR/AUD followed suit. The post ECB Held Rates Steady, Stressed Importance of Wage Growth in Next Decisions first appeared on Investorempires.com. via Investorempires.com https://ift.tt/6PiUITh July 19, 2024 at 01:03AM

Market brief - 24th May Inflation data was overshadowed by the election announcement but the drop to 2.3% puts inflation at a 3yr low. Where the economy will be central to the election, many want to see how Labour plan to approach the £30bn economic black hole because taxation, or public spending cuts, are hardly vote winners. Employment data is overtaking inflation data as a key market driver because wage inflation sits outside of the ‘basket of goods’. Just like in the UK, there are concerns over US wage inflation outstripping headline inflation and it needs to be brought down in order to deliver a soft landing. Jamie Dimon has previously voiced concerns over the recession risk from higher rates, he does not like the idea that the Fed could raise rates again, where deflation looks to have stalled. The ECB meeting is expected to see a rate cut and the latest forecasts for growth and inflation. These will likely be cautious and non-committal about further rate cuts. Where wage inflation in Germany hit 6.2% in Q1, it was the fastest pace in almost a decade and will cast further doubt on another rate cut before the Autumn. The dollar is building a solid footing and the dollar index rallied to 105.10 yesterday. Sterling fell to around 1.2685 from election uncertainty and the euro lost ground on rate expectations, despite decent output data.  GBP kicked off around 1.2695 against USD, 1.1735 against EUR and EURUSD was around 1.0815 on the open #Finance #FxPlew #news

[email protected] Affiliate ID 27533841. #affiliatemarketing The ECB meets on Thursday and no policy changes are expected, with investors instead waiting to see if officials will reiterate that it's too early to discuss a rate cut. The ECB has postponed rate cut talk, with officials saying they need to see more evidence that inflation is on track to return to the 2% target, but markets still expect Frankfurt to start cutting rates later this year. Eurozone inflation data on Friday seemed to support the ECB's cautious stance. Consumer price inflation slowed less than expected in February, while core inflation also slowed at a slower pace than expected. The ECB's big worry is that wage inflation is still too high and risks adding to longer term price pressures.

Don't count on a euro-zone rate cut this autumn following June's opening move. That's the message from markets after first-quarter data for negotiated wages came in hotter than anticipated and PMIs pointed to a strong economic rebound, as Alexander Weber and Mark Schrörs report. https://lnkd.in/eWZs4umM Even the most dovish European Central Bank officials had gone quiet on lowering borrowing costs in July but now September - the next meeting after that - is coming under scrutiny. Investor bets on monetary easing this year have now receded to about 65 basis points - meaning they're only fully pricing two quarter-point steps, compared with three earlier this month. Bank of France Governor Francois Villeroy de Galhau insists that the early-2024 pay numbers don't change the overall backdrop, highlighting the one-off payments that skewed Germany's contribution to the region. But those figures will soon be followed by May's euro-area inflation reading, which most analysts reckon will exceed April's. September is, of course, a long way off. But once June's behind us, it's sure to be the next focus.