Archive

Inconsistently Dovish Pricing

• Dovish market fears from April have unwound for the Fed, yet deepened for the BoE, despite broadly resilient data and cautious guidance from policymakers reluctant to cut.
• Equity prices have relied on this resilience to recover, yet expectations for extended rate-cutting cycles imply it breaks. Payrolls only forced half of the gap to close.
• We expect ongoing resilience to keep rolling market pricing for rate cuts later, with the unnecessary easing ultimately never being delivered by the BoE, Fed, or ECB.

By Philip Rush

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

EA: Calm At The Inflation Target

• An unsurprising achievement of the 2% target might urge a celebration at the ECB, but it does not demand policy action. Energy price declines can’t be relied upon to repeat.
• The early consensus forecast was surprised on the upside, but raised by last week’s releases in France and Spain. So, while reassuring, this outcome is not dovish.
• We expect inflation to stay close to the target, whereas the ECB forecasts a substantial drop below it, while calling policy well-positioned. We still see no more rate cuts.

By Philip Rush