Archive

ECB: Less Downside From The Good Place

• Downside activity risks have reduced, while the inflation outlook holds steady, keeping the ECB in its “good place” despite an implied shift up in the balance of risks.
• Upside risks while inflation is seen settling at 2% would imply a hawkish bias, which the ECB isn’t ready to convey. But the skew may have swung within insignificant margins.
• We still expect no more ECB rate cuts this cycle. If underlying inflation fails to slow as hoped, the ECB’s balanced bias could easily break into a hawkish one in 2026.

By Philip Rush

Credit For Inflation

• Credit and monetary holdings are booming in the UK, enabling consumers to spend their devalued pounds, supporting CPI inflation beyond the target.
• Falling rates have neutered the refinancing shock, facilitating the affordability of loan demand. Rapid ongoing wage growth further reduces the debt burden.
• The ECB also sees bullish monetary trends, but they only took it to a good place. The BoE is not in a good place, with policy accommodating above-target inflation pressures.

By Philip Rush

EA: Inflation Rises Briefly In The Fall

• Inflation’s rise to a high 2.3% in September was confirmed in the final print, although some payback remains likely in October. We doubt it goes fully back to the target then.
• Underlying inflation metrics were broadly stable again at about 2.5%, with little progress in most statistical measures for over a year.
• There is little cause for alarm at this stage, so the ECB can keep waiting in a good place, but we still see a greater risk of hikes than cuts in 2026.

By Philip Rush

HEM: Oct-25 Views & Challenges

• Hawkish inflation and policy rate pricing shifts toward our UK/EA view did not stop US rates frontloading more cuts.
• We still see markets overpricing easing, with UK inflation expectations stuck above target, and neutral rates high.
• A break in activity data, especially unemployment, and underlying price/wage inflation, would threaten our view.