Not only were today’s preliminary inflation figures for the euro area very weak, but the breakdown raised new concerns over the underlying trend in consumer prices – a potential headache for the ECB, independently of recent developments in the real economy and financial markets. According to Eurostat’s estimates, euro area HICP inflation fell to -0.19% […]
We continue to believe that the credit cycle has legs and we therefore maintain our forecast for the euro area GDP growth unchanged at 1.8% for 2016. Nevertheless, we also remain cautious. January bank credit flows came before the most severe episode of financial market stress, which could have an impact on banks’ balance sheets […]
We expect the ECB to cut the deposit rate to -0.50% by June, probably in two steps (by 10bp in March and by another 10bp in June), as part of its response to weaker inflation prospects and tighter financial conditions. That said, the adverse consequences of negative rates are becoming increasingly visible as foreign central […]
Recent chronology of events Since 2009 and up until recently, central bank action has helped to stabilise equity markets. Looking at recent events, it now seems that the opposite is becoming true. The last two monetary decisions (ECB on 3 December 2015 and BoJ on 29 January 2016) coincided with intermediary peaks in developed market […]
Although we have left our forecasts for euro area GDP unchanged – 1.8% growth expected in 2016, well above trend – downside risks have intensified in recent weeks. There are both good and bad reasons to worry about the recovery but, in short, the euro area can continue to do well despite sluggish global growth, […]
Draghi’s latest hint at fresh monetary easing heralds a six-week period of waiting and guessing what the next measures might look like. One critical factor driving the decision will be the ECB’s assessment of indirect effects of lower oil prices on inflation. Draghi promised “a more comprehensive picture” of those various transmission channels at the […]
The ECB left all policy settings unchanged at today’s meeting, as widely expected. At the same time, the overall tone of the press conference reflected yet another significant dovish shift in the ECB’s communication – one that the Governing Council agreed on unanimously – strengthening our view that fresh easing measures are likely to be […]
Instead of looking at single currencies, it is sometimes interesting to look at broader themes to have a better understanding of how a certain group of currencies might behave. Among the best-known themes or strategies are carry trades, which are based on the principle of systematically buying high-interest-rate currencies and selling low-interest-rate currencies. Carry trade […]
Two weeks into 2016, six weeks after easing policy at the December meeting, here we are again: the ECB is under pressure to do more. Investors continue to react to a number of related concerns, including the uninterrupted fall in oil prices, volatility in Chinese equity and currency markets, uncertainty over China’s growth and medium-term […]
Inflation is very subdued throughout the eurozone. But it is not so low just because oil prices have been nosediving. Depressed aggregate demand acts as a fertile breeding ground for a deflationary spiral to take root. Confronted by this risk, the ECB has at long last provided its unconventional response to meet this challenge. However, […]
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