CHINA: "*CHINA VOWS TO ADOPT 'POWERFUL' MEASURES TO EXPAND DEMAND: [...]

See the following pdf for a succinct summary of various ECB speakers at the Sintra Forum so far: https://mni.marketnews.com/4vIrDAp

• ECB Speak has unsurprisingly been heavy during the ECB’s Sintra Forum, with further appearances from Chief Economist Lane before President Lagarde due later today on the last day of the conference. Lagarde will be on the keynote panel with Fed Chair Warsh, BoE’s Bailey and BoC’s Macklem, starting 2pm London.
• The more hawkish members of the Governing Council haven’t been overtly pushing for an immediate follow-up rate hike after last month’s 25bp hike, instead maintaining optionality. Some have argued the need for further tightening has receded following the marked decline in crude oil futures. There is however still much uncertainty including how long it takes to convert the current US-Iran peace agreement into something more durable, whilst Chief Economist Lane warned on the time it could take for higher energy prices to show up. There doesn’t yet look to be any evidence of material second-round effects from the previous spike in energy prices although wage agreements remain a key focus point.
• Bloomberg’s NLP hawk-dove score has tilted a little more hawkish over the duration of the conference although in the broader picture it’s only a slight move since our last ECB Speak Wrap on Jun 22 covering commentary in the first full week after the June decision.
• ECB-dated OIS currently prices just 2bp of hikes for July, a cumulative 16.3bp Sept and sees a 25bp hike as a close call between Jan and Mar 2027.

While the ECB will welcome this month’s flash HICP outcome it will need to see relatively swift evidence of a further moderation in inflationary pressures to prevent further tightening (more likely to come in September than July, at this stage).

• The June reading showed a fairly broad-based moderation in inflationary pressure, but all of the major metrics continue to run above the Bank’s 2% target.
• Markets were already pricing less than 10% odds of a follow up hike in July ahead of today’s data. Further out, the risk of second round price impacts stemming from the Iran war and continued lower than pre-conflict transit/bottlenecks through the Strait of Hormuz means that over 60% odds of a hike are priced come the end of the September decision, with ~90% odds of a hike being delivered through year-end.
• Initial sell-side views following the data are reflective of this:
• Commerzbank: We expect the inflation rate to remain close to 3% in the second half of this year as well. Although energy prices are likely to fall slightly, companies are expected to increasingly pass on their energy costs – which remain higher than they were before the start of the Iran war – to their customers, meaning that the indirect effects feared by the ECB will intensify for the time being. The central bank is likely to respond to this with another interest rate hike in September.
• ING: For the ECB – currently on its annual off-site in Sintra, Portugal – the outlook seems to be turning more dovish. President Christine Lagarde opened the conference by saying the ECB doesn’t need to be as forceful as it was in 2022 to fight inflation. But the question is whether it needs to be forceful at all to do so. At this rate, it seems not. But with uncertainty around the Middle East deal remaining, the ECB will appreciate some time to see how things play out and whether any force is still necessary.
• Nordea: Today’s numbers should ease inflation concerns and significantly lower the risk of another policy rate hike already at the July meeting. However, it is much too early for the ECB to call off its inflation concerns, partly because it is too early to assess the extent of any second-round effects and partly because doing so would open up for criticism with regards to the June rate hike.
• TD Securities: This will likely give the ECB enough comfort to hold rates in July, but the continued supply shortage of oil throughout the summer months and the risk of second-round effects will keep the ECB vigilant into the following policy meetings.