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Euro area business confidence remains strong

The euro area May PMI indices remained consistent with Mario Draghi’s assessment of the ongoing recovery as “solid and broad”. The composite flash PMI remained stable at 56.8 in May, against expectations of a small decline. This apparent stability masked further improvement in the largest member states as business confidence outperformed in the French services […]

The ECB debates sequencing of policy moves

Recent comments from ECB executive board member Benoît Coeuré have confirmed that the ECB is likely to make further changes to its communication at its 8 June meeting, moving towards a neutral stance despite a likely downward revision to the 2017 inflation staff forecast. Importantly, Coeuré sounded open to further changes to the ECB’s forward […]

ECB: the courage not to act

The European Central Bank left policy and forward guidance unchanged at today’s meeting notwithstanding the “increasingly solid” recovery and “diminished” downside risks to the outlook. Our impression is that there is a strong consensus to “finish the job” by keeping the monetary stance very accommodative until the ECB sees signs of life in core consumer […]

Drop in euro area inflation amplified by statistical distortions

Euro area headline inflation declined for the first time in almost a year, by a larger margin than expected by the consensus. Headline HICP eased to 1.5% in March, from 2.0% in February, while core HICP inflation (excluding energy, food, alcohol and tobacco) dropped to a two-year low of 0.67% y-o-y, from 0.86% in February. The […]

Euro bank credit still strong in spite of February weakness

The euro area M3 and credit report for February was slightly disappointing overall. Broad money growth (M3) eased from 4.8% to 4.7% y-o-y.  Bank loans to non-financial corporations fell back to 2.0% y-o-y in February, from 2.3% in January, as a result of weaker lending flows across the region. Notwithstanding this modest setback, the euro […]

Take-up of TLTRO loans is good news for euro bank credit

The fourth and final of the ECB’s Targeted Long-Term Refinancing Operations (TLTRO) today attracted EUR233bn in demand from 474 euro area banks, well above consensus (EUR110bn). Expectations of an ECB deposit rate hike may have boosted demand for this operation, as it provided a last opportunity for banks to secure four-year funding at a rate […]

Escaping from planet NIRP

The debate over the ECB’s exit strategy from its negative interest rate policy (NIRP) has started in earnest. Recent comments point to a possible reversal in the exit sequencing, with a deposit rate hike preceding the end of net asset purchases. A one-off adjustment in negative rates would have some merits, including for banks’ interest […]

ECB fine tunes communication as recovery broadens

The ECB delivered a fairly balanced, albeit more optimistic message at today’s press conference, echoing upward revisions to the staff projections for 2017-18 euro area GDP growth and inflation. Crucially, however, the 2019 projection for inflation was left unchanged at 1.7%. Looking ahead, the ECB’s four inflation criteria are unlikely to be fully met before […]

ECB preview: less reason to be dovish, but inflation battle not yet over

The latest economic developments are consistent with the ECB turning somewhat more hawkish – or, more accurately, less dovish. Business surveys have improved, pointing to annualised GDP growth of around 2% in Q1. Headline inflation returned to the ECB’s 2% target in February, for the first time in four years. The euro area composite PMI […]

Wage growth eases in the U.S. despite strong job creation

Non-farm payroll employment in the US rose by 227,000 month on month in December, above consensus expectations (180,000). The unemployment rate rose slightly further, to 4.8% in December while the broader U6 unemployment rate rebounded to 9.4%. Overall, however, the underlying picture remains one of ongoing improvement in US labour market conditions. As we highlighted in […]

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