SEB:
The full year headline HICP forecast is 8.1% for 2022 and 5.5% for 2023 compared with 6.8% and 3.5%, respectively, in the June macro projections. Using our own latest projections suggest there is additional upward risk to the ECB’s forecast (we have 8.6% for 2022 and 6.3% for 2023).
We expect the ECB to raise policy rates by 50bps in October and December, resulting in the deposit and refi rate of 1.75% and 2.25% in end-2023, respectively. €STR forwards are discounting the deposit rate of 1.75% in December and further hikes to 2.25% in 2023. We see risks of the ECB raising rates more than our current forecast.
MUFG:
The euro (EUR) had failed to strengthen on the back of the hawkish repricing of eurozone rates. It provided further evidence that higher rates alone weren't sufficient to strengthen the euro, while concerns over a sharper slowdown/recession in the eurozone remained elevated.
The negative hit to the eurozone's terms of trade from the energy supply crisis continued to weigh heavily on the euro. Lagarde stated that the ECB acknowledged that the euro had depreciated, adding to inflationary pressures, and that it was closely monitoring the exchange rate.
However, the comments weren't strong enough to provide more support for the euro by further encouraging expectations that it would play a key role in further tightening decisions.
ING:
We still think it's being too optimistic about the economic outlook. The ECB’s baseline scenario is +0.9% GDP growth in 2023 which is much more optimistic than our own forecast.
Interestingly, in its baseline scenario, the ECB expects inflation to still come down to 2.3% in 2024 and actually to reach 2.2% from the second quarter of 2024. Admittedly, there is currently very little belief among ECB members in the reliability of these long-term projections. However, the very hawkish tone today doesn’t really match these inflation projections.
We think that at some point in the coming months, the ECB will have to acknowledge that its growth expectations are too positive. In our view, the ECB will only be able to hike rates by a total of 75bp by the end of the year. This could be another 75bp at the October meeting or 50bp in October and a last-minute 25bp hike at the December meeting.
UBS:
It is interesting that the ECB decision was, according to Lagarde, "unanimous". If no doves dissented, then to me that is a hawkish signal. Usually the decision is a compromise between hawks and doves, which suggests that this time some hawks might have been demanding 100bp and/or starting to discuss QT.
ECB president Lagarde was very defensive on the Transmission Protection Instrument (TPI) when asked whether it could be activated even as the legal terms have still not been published. She did not really respond. My own understanding is that for a country to be eligible, a political green light from the Eurogroup/European council would be required. Hence, if the ECB wanted to activate TPI for, say, Italy tomorrow, they could not.
BNP Paribas:
As for inflation, according to Eurostat’s flash estimate, the figures for August show a further increase of 0.2 points, to 9.1% year-on-year. Without the slight fall in the contribution of the energy component (from 4 to 3.9 percentage points), the rise in the headline inflation rate would have been greater, as the contribution from the food component increased further (+0.2 point, to 2.3 points) and also that of the core index (+0.1 point, to 2.9 points). Core inflation therefore stands at 4.3% year-onyear.
We should expect further increases in the prices of food, manufactured goods and services. And while the price of oil and therefore of petrol fell sharply in July and August, gas prices continue to scale new heights.
The Eurozone appears to be heading for at least two quarters of GDP contraction, in Q3 and Q4 2022. A contraction which, however, is expected to remain limited thanks to the continued positive dynamic in the labour market, the good tourist season and the fiscal support measures, on the assumption too that the energy crisis remains under control.
TD Securities:
The macro situation will continue to deteriorate and that is deeply problematic for this pro-cyclical currency staring down a deepening energy crisis
The ECB's rate decision wasn't really a surprise, without much to chew on for EUR/USD. The euro's reaction to the decision was to "buy the rumor, sell the fact".
Eurozone's macroeconomic outlook remains fragile, the ECB's decision to raise rates by a larger 75bps doesn't change that
Commerzbank:
The ECB will continue to raise its key rates "significantly" in October, probably by 50 basis points. As long as the recession feared by many didn't become visible in hard economic data, the ECB was likely to focus on the much too high inflation and continue to raise its rates rapidly.
From the ECB's perspective, a deposit rate of 1.75% could be sufficient to ensure inflation of 2% in the medium term. This was because the ECB saw the neutral interest rate, which neither boosted nor slows down the economy, between 1% and 2%. But with an inflation target of 2%, this would mean an equilibrium real interest rate of below 0%, which was implausible insofar as the real interest rate should be compensation and not a punishment for foregoing consumption
To put a lasting brake on inflation, the ECB would even have to go beyond that, because inflation was massively above its target. But a deposit rate of, say, 4% was unlikely to win a majority in the ECB's GC for a long time yet. In this respect, despite the ECB's clear decision today, we expect inflation to remain well above 2% for many years.
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