STIR: 53bp ECB Cuts Priced Thru Dec, Stournaras Points To Pause After June Cut

The ECB’s latest forward-looking wage tracker update (which includes agreements signed up to the first week of April) remains consistent with the Governing Council’s base case of easing compensation pressures through 2025. 

• Compared to the March iteration, the latest wage tracker excluding one-off payments (which we think gives the best view of underlying compensation pressures) has a slightly lower profile in Q1/Q2 2025, but an unchanged terminal in Q4.
• Q4 2025 wage growth excluding one-offs still tracks at 3.02% Y/Y.
• The wage tracker with unsmoothed one-off payments tracks Q4 growth at 2.88% Y/Y (vs 2.85% in March), while the headline wage tracker has 1.62% Y/Y (vs 1.55% in March).

Definitions of the different metrics according to the ECB:

• The headline ECB wage tracker shows negotiated wage growth that includes collectively agreed one-off payments, such as those related to inflation compensation, bonuses or back- dated pay, which are smoothed over 12 months.
• The ECB wage tracker excluding one-off payments reflects the extent of structural (or permanent) negotiated wage increases.
• The ECB wage tracker with unsmoothed one-off payments is constructed using a methodology that, both in terms of data sources and statistical methodology, is conceptually similar to, but not necessarily the same as, the one used for the ECB indicator of negotiated wage growth.

• MNI: EUROZONE FLASH APRIL MANUF PMI 48.7 (FCAST 47.4, MAR 48.6)
• EUROZONE FLASH APRIL SERVICES PMI 49.7 (FCAST 50.5, MAR 51.0)

• Tariff and Fed-independence induced volatility has prompted the potential formation of a hammer in the GBP/USD daily chart which, if confirmed, could see the pair establish a base and resume the short-term uptrend. Strength through 1.3400-24 would be key here - opening the 1.3434 bull trigger (the Sep'24 high).
• The prospects of a UK-US trade deal remain front page news. Today's Times runs that the government is "hopeful" that a deal will allow the UK to avoid the worst of the tariffs - specifically the 25% tariff on steel, aluminium and car imports - however the 10% blanket tariff could be here to stay. Chancellor Reeves is set to meet the US Treasury Secretary on Friday. The Times concludes that ministers hope that they will be able to get a deal over the line by the end of the month.
• JP Morgan write that GBP strength on any US-UK trade deal would present good entry levels to fade over the medium term - with any deal unlikely to undo the key impacts of the last months events on the currency. The UK could also get caught between opposing demands from the US and EU on trade. As a result, they use favourable levels to enter a short GBP position vs NOK, SEK cash basket. They see Sterling’s stagflationary reaction function as remaining on the table as a threat over the rest of the year.