September 10, 2021

HEW: exploding gas and inflation preview

  • Over the past week, the rapid phase of the UK’s recovery died in the official data; we reiterated our gloomy view around winter covid restrictions, and the ECB recalibrated a PEPP taper. Norway’s inflation also surged ahead of the election and a likely rate hike.
  • Next week, after that election, the UK’s labour market, inflation and retail sales data will be released, along with the final EA HICP and Sweden’s CPI for August. We are rounding below the current consensus on the UK CPI but rounding in line on the RPI.

September 09, 2021
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ECB accepts undershoot with less pepp

  • The ECB recalibrated the PEPP at a slower pace. Although that should not threaten favourable financing conditions, the reduced stimulus seems inconsistent with attempting to meet the inflation target. The total envelope may not now be filled.
  • By accepting an undershoot of the new symmetrical 2% inflation target, the ECB’s actions suggest less change in its reaction function than we thought. Nonetheless, rate hikes remain a remote prospect and the APP is likely to step up as PEPP steps down.

September 07, 2021
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Covid: winter is coming again

  • Covid infections have been relatively subdued in Europe recently, but we still expect them to seasonally surge into the winter, despite vaccinations. The US demonstrates that it is possible and that hospitalisation rates are not breaking lower than last year.
  • Politicians are risk minimising for covid, with the UK government especially aggressive as it seeks to protect the struggling NHS. A return of some restrictions in the winter is likely to hit the UK harder than the US, while we still see the Euro area as in between.