Allianz GI: An additional quarter is needed

Frank Dexmeyer“We believe that the growth slowdown in the euro area is not yet worrying enough to warrant a pause, while inflation levels remain far from the ECB’s target,” said AllianzGI’s head of global bonds. Another worrying factor for the central bank is that the market’s confidence in its ability to achieve its targets is gradually eroding, with inflation expectations slightly out of sync (the five-year and five-year inflation swap is at 2.60%).

“It is time for further tightening of monetary conditions.”

“Therefore, it is time for further tightening of monetary conditions. ECB President Christine Lagarde is expected to announce a 25 basis point hike at the September meeting. Investors have clearly understood the theme of a longer-term rise. But with markets assuming a 65% probability “If interest rates rise by just 25 basis points this year, they may reduce the likelihood of future rate hikes. Therefore, investors seem unprepared, and the increase may offset the interest rate rise in the summer which may encourage further.”

abrdn: Probably a decade

Economist Felix’s feather: “At the last monetary policy meeting of the European Central Bank’s Governing Council, policymakers agreed that they should follow a policy of strict data dependence. But the minutes of that meeting showed that divisions are growing.”

“Since then, several officials have agreed to the increase. The bank’s dovish ones have been less vocal, but there are certainly policymakers concerned about downside risks to the economy. So it is unlikely that an agreement will be reached within the board.” Whether or not Whether doves or hawks win will depend on how effectively they win the votes needed to secure their preferential tariff decision.

“Two factors favor the ‘retain’ faction. First, many of the normally aggressive officials will not have voting rights next week under the bank’s rotating voting system. Second, the bank’s only viable compromise decision – suspension with aggressive messages – is an immediate increase.”

“There are two factors in favor of the ‘Establishment’ faction.”

“We therefore believe that consolidation is the most likely outcome. However, the chance of an upside remains high. Such a move risks exacerbating the recession that we believe is already underway. A wide range of indicators suggest that the euro area economy is on its way to growth.” “It is likely to contract in the third quarter. With the impact of previous monetary tightening mounting and no easing on the horizon, we expect contraction to continue through the winter.”

Carmignac: Another increase

Kevin Thusetmember of the Investment Committee of Carmignac: “Many indicators show that the transport mechanism is working well in the euro area. Recent economic publications show that the economic slowdown, which mainly affected the manufacturing sector, is now also having an impact on the services sector. Interest and capital costs weigh on investments.European consumers have indicated that they want to save more and have become cautious about making large purchases.

“However, the inflation genie is not back in the bottle. Core inflation is expected to hover around 4% by the end of the year (based on our own estimates) and remain above 2% in 2025 (based on ECB forecasts).”

“In a stagflationary environment in the Eurozone, the ECB’s interest lies more on the inflation front than on the growth front. After all, the ECB’s official main mandate is price stability. Therefore, the ECB will not want to Giving the impression that the future will be more stable. “Monetary easing (in the medium term) is possible. This will only increase inflation expectations.”

“In a stagflationary environment in the euro area, the ECB’s attention is more focused on the inflation front.”

“We therefore expect the ECB to continue to take a strong stance on inflation and raise interest rates again before pausing to assess inflation. The balance sheet reduction should also occur faster than expected.”

Vanguard: The ECB should raise interest rates again

Investment strategist Shan Raithatha: “It will seem like a close call, but overall, we think the ECB should raise interest rates by another 25 basis points given that core inflation remains uncomfortably high. However, we also see compelling reasons to pause. “The economy is in good shape.” Heading toward recession in the second half of 2023, given restrictive monetary and fiscal policy drivers, a pause is also the path of least resistance.

“Finally, there is also the possibility of a ‘tight hold’, where a temporary pause in interest rate hikes is a trade-off for a more aggressive path of balance sheet contraction in the coming months.”

“Whatever happens, the ECB is likely to reach the ‘final interest rate’ for this cycle after Thursday. In our base case, we expect interest rates to be maintained at this level until at least the second half of 2024, before the gradual easing cycle begins.” “

Van Lanchot Kempen: It’s a close call

Chief Economist Lux Abin: “Economic data in the Eurozone is quite weak. For example, the PMI from the services sector indicated contraction. This was previously the case for industry. The impact of the reopening of the economy after Corona restrictions is now also leaking from the services sector. Accordingly, the growth figure for the second quarter was revised downwards: from +0.3% to +0.1%.”

“Apart from numbers that are marginally above or below zero, the message is that economic growth in the eurozone has been stagnant for three quarters. At the same time, inflation remains persistent. At 5.5% year-on-year, core inflation shows little In addition, the PMI PMIs indicate continued price pressure. Consumers have understood this as well. They do not expect inflation to fall to the desired 2% in the coming years.

“This is leading to economic conditions in the eurozone with stagflation-like characteristics, which is difficult for central bankers. As in the United States, rising oil prices (and some food prices) present an additional difficulty. Therefore, next Thursday will be “Close call.”

“Given inflation and the ECB’s strict mandate, a new interest rate increase would not be unreasonable.”

“Looking strictly at inflation and taking into account the ECB’s strict mandate (at least, in theory), a new interest rate increase would not be unreasonable. However, if the ECB takes a break, Christine Lagarde will stress At least “interest rates will remain high for a long time.” This leaves the door open for further monetary tightening. “Economic momentum may not be weak enough to prevent the ECB from eventually raising interest rates if inflation persists.”

DWS: To the last interest rate increase

Martin MorrisonEurope’s chief economist: “It’s intense pressure, but I still expect the ECB to raise interest rates again this week. This is also the last time in this unusual cycle of interest rate increases.”

“Lagarde and her colleagues made no comments in the run-up to this meeting, highlighting the dependence of future decisions on data. The key question is whether the economic slowdown caused by rising interest rates is sufficient to control inflation. Recent economic data have been disappointing, whether In Europe or elsewhere in the world, it was therefore a target for monetary doves.But the latest inflation figures surprised the summit, and this was fuel for the hawks.

“This is the time to make the final interest rate move.”

“The ECB will also present the new forecasts. Economic growth forecasts will be revised downward slightly, but inflation expectations will rise sharply. This is the time to take the final interest rate move and show markets and consumers that the ECB is really serious about fighting inflation. Then it can Central bankers can sit back, have a cup of tea, and watch inflation slowly return to normal.