VGK - Rates Spark: ECB Unlikely To Satisfy Doves

2024-07-18 07:15:00 ET

Summary

• The ECB is not likely to cut at this meeting and will likely refrain from committing to future cuts.
• Markets are very close to pricing in two more 25bp cuts for this year, which limits the scope for the short end of the curve to come down.
• In France, the political challenges continue to evolve on a daily basis but markets remain unmoved.

By Michiel Tukker , Benjamin Schroeder , Padhraic Garvey, CFA

ECB reluctant to meet dovish market expectations

The European Central Bank won’t decide to cut rates at this meeting, but may tweak its communication about the strategy going forward. Our baseline remains an ECB that reiterates a data-dependent approach, which means no forward guidance for a September cut. Euro rates could see a nudge higher in this case as markets seem to be looking for an ECB that is moving closer towards an easing cycle. The 10Y Bund yield could see a nudge back towards the 2.5% handle....

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