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HEM: Rolling Resilience

• Activity remains resilient, and labour markets are tight
• Underlying price and wage inflation mostly track >2%
• Doves assume this regime breaks, but it isn’t happening
• Cuts can keep rolling later and may never materialise
• Rate hikes are more historically usual after pausing

ECB Still Squeezed By Unemployment

• EA unemployment’s rise to 6.3% matched the ECB forecast underlying recent hawkish guidance and narrowly relied on Italy, which offset a broad tightening elsewhere.
• Unemployment is still broadly lower than a year ago and pre-pandemic. That will not help a disinflationary move along the Phillips Curve, let alone shift it lower.
• Without a disinflationary surprise, the ECB should not be shocked into a rate cut as it describes the prevailing setting as well-positioned. We still see no more ECB cuts.

By Philip Rush