ECB: Sentiment on growth in Europe could be poor for bond market

by | Mar 7, 2024

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Following the latest ECB interest rate decision announced today that they are leaving rates unchanged for now Nick Chatters, Fixed Income Investment Manager at Aegon Asset Management has shared his thoughts on what this means for the markets – and bond markets in particular commenting:

“The initial move lower in yields came about when the statement was released, showing that the ECB’s latest set of macroeconomic projections, have inflation falling back to the 2% target in 2025, a more optimistic situation than markets had initially expected.

“Moving into the press conference, Lagarde’s key point was to reiterate that although there has been good progress on inflation, they are confident, but not sufficiently confident. What will give them confidence? More data, and we will have that by June. So that’s April off the table then, June in focus, and the market fully pricing the cut already. Aside from this, she was careful not to make comments that muddied this message.

“One point I picked up on was how she characterised the economic situation. She pointed to good growth over the next few years, given their expectation that real incomes should remain strong, as inflation falls and wages remain robust. To me, this seems at odds with the risks to growth being “tilted to the downside”, as she mentioned.

 
 

“I think that the overall the message here is that inflation is falling nicely, but they quietly hope for a bit of economic strength, given what they see from the US consumer. If this comes through, sure they will cut in June, but given how depressed the sentiment is on growth in Europe (PMIs around / sub 50), this could be poor for the bond market, but that’s still an if for now.”

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