All Eyes on Lagarde
The ECB famously hiked in the summer of 2008 ahead of the credit crisis, and then again in 2011 just as the region was about to lapse into the sovereign debt crisis, and this explains why it has proceeded cautiously
Last month’s blog post from Lagarde more or less promised that target overnight rates would be back above zero in September. That represents a big shift.
The move in European fixed-income markets has already been seismic. The rise in 10-year German bund yields over the last six months has been the largest this century
John Authers Bloomberg 9 juni 2022
“To be completely clear, we still don’t understand the ECB’s rush.
We are self-declared macro bears, because we don’t really understand how the economy can go through a very large energy price shock unscathed in the first place, never mind how the economy is supposed to cope with neutral rates when it is so far away from equilibrium,” wrote the BofA economists.
“But we have understood that the central bank is keen to be seen to act against inflation (even if hikes can’t help much with this type of inflation), and to lean against the risk of second round effects proactively.”
The other question around this ECB meeting is the extent to which the central bank is willing to fight the market on bond yields in so-called financially stressed eurozone countries.
“It is possible that the ECB will announce this Thursday a new instrument for potential selective bond purchases in the future. More likely, the ECB will simply state more forcefully than before that it would act against ‘excessive fragmentation’ without going into any details,” said Holger Schmieding, chief economist at Berenberg Bank.
MarketWatch 8 June 2022
BlackRock is betting
that a flagging economy will curb the European Central Bank’s ability to raise interest rates over the next 18 months as soaring food and energy prices squeeze consumers in the eurozone.
Faced with record-high inflation, the ECB is on Thursday expected to lay out plans to end eight years of bond-buying and negative interest rates
However, investors have gone too far in anticipating a series of aggressive rate increases that would take the ECB’s deposit rate to 2 per cent by the end of 2023, from the current all-time low of minus 0.5 per cent, said Michael Krautzberger, who oversees active fixed income strategies in Europe at the $10tn asset manager.
FT 9 June 2022
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