With the latest data on the EU Consumer Price Index being revealed with an expected rise to 2.2% in April, industry experts and professionals have shared their views and thoughts on what this means.
Jochen Stanzl, Chief Market Analyst at CMC Markets comments: “Concerns about European economic growth, softer business surveys and a strong euro have already heightened expectations of further ECB rate cuts, but today’s inflation figures could throw a spanner in the works. Money markets had been pricing in 67 basis points of additional easing this year ahead of the data and, with inflation proving somewhat stickier than anticipated, the prospect of a further rate cut in September – following the already anticipated quarter-point reduction in June – may now be in doubt.
However, there is considerable uncertainty surrounding trade policy, and inflation forecasts still encompass a wide range. When it implements its June cut, the ECB is unlikely to signal what it will do in September, emphasising instead that decisions will be taken from one meeting to the next.”
Pierre Roke, Analyst at Validus Risk Management, said: “Eurozone inflation rose to 2.2% in April, in line with March’s 2.2%, following hotter-than-expected inflation prints from Germany, France, and Spain. This comes despite a continued decline in energy prices, driven by mounting fears of a broader global economic slowdown. The latest inflation data is unlikely to alter market expectations, with a 97% probability still priced in for a 25-basis point rate cut at next week’s ECB meeting. However, it does add renewed pressure on European policymakers who are juggling weak growth and persistent price pressures. A potential reprieve could come if inflation trends lower as forecast and falls below the ECB’s 2% target later this summer.
EURUSD has had a muted effect on the back of this hotter-than-expected inflation print but looking longer term, if Europe and the U.S. fail to reach a tariff agreement—despite reports that the EU is prepared to offer a €50 billion trade package—further pressure on interest rates is likely. EURUSD has been range-bound between 1.13 and 1.14, but continued negative economic data could push the pair lower.”
Daniele Antonucci, Chief Investment Officer at Quintet Private Bank (parent of Brown Shipley) said:
“The upside surprise in Eurozone inflation comes at a time when the European Central Bank will be deciding the next monetary policy moves.
While the median expectation was for a slight decline, closer to the 2% inflation target, the unchanged reading muddles the picture somewhat.
Even though energy continued in its path of disinflation, services inflation (a key component for the all-important core inflation metric) rose on the month and on an annual basis too.
This resulted in a rise of core inflation, potentially casting some doubts on the claim from the central bank that underlying inflation, stripping out volatile components such as food and energy, is slowing.
At the same time, we think rate cuts still look more likely than not, given the increase of downside risks from the trade tariffs and the uncertainty that US trade policy is creating more generally.
For investors, the key question is how to navigate this period of volatility. Our answer is via a strategy of portfolio diversification.
Basically, after the drop in equities and rise in government bonds, we’ve rebalanced portfolios roughly to their target weights in the strategic asset allocation, the key pillar to meet clients’ return and risk objectives.
Risks are still high but, after the initial sell-off and tariff suspension/dilution, they’re also more symmetric.
Rather than reacting too quickly to the news flow, which can lead to crystalising losses, we believe it’s more sensible to stay diversified across regions and asset classes.
This way, a wobble in one part of the portfolio (like equities) can be offset by a gain elsewhere (such as domestic government bonds).
We’re sticking with our existing investments in government, high-quality corporate and inflation-linked bonds, gold and commodities.
This positioning aims to mitigate the impact of uncertainty on portfolios, which is likely to remain until negotiations start to bear their fruits and policy stimulus sets in.
Tactically, we prefer European equities and a US equal-weight equity index, where valuations are more attractive and policy catalysts (European defence and infrastructure spending, US tax cuts and deregulation) look supportive.”
