ECB: Estimates Of Continued Heavy Downward HICP Pressure From Mon Pol
ECB Chief Economist Lane’s lecture on “Inflation and disinflation in the euro area” was on the academic side. However, one slide of note is on the impact of monetary policy setting from late 2021 to March 2025 on pg 17 which showed continued large drags on HICP inflation from prior policy tightening.
- It shows a small positive contribution to real GDP growth from 2025 onwards, although it’s closer to neutral after some heavy drags through 2022-24.
- However, it continues to see heavy drags on HICP inflation across the forecast horizon out to 2027.
- The mean drag across six models is a little over 2.5pps in 2025 which then narrows to closer to 2.0pps in 2027. There’s a wide range of estimates, with the BASE (semi-structural) model suggesting ongoing drags are closer to 1pps v up to the NAWM model (micro-founded) where the drag is >4pps in 2024 and ~3.5pps out in 2027.
- The projections are based on latest market-based short rate expectations as of Feb 6. Since then, Euribor Dec 25 implied yields are 17.5bp lower and Dec 26 implied yields are almost 10bp lower, which the former in particular should start to reduce the above lags over the forecast horizon.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
US 10YR FUTURE TECHS: (M5) Monitoring Resistance
- RES 4: 113-04 76.4% retracement of the Apr 7 - 11 bear leg
- RES 3: 112-12 61.8% retracement of the Apr 7 - 11 bear leg
- RES 2: 111-25 50.0% retracement of the Apr 7 - 11 bear leg
- RES 1: 111-00+/17+ 20-day EMA / High Apr 16
- PRICE: 110-30 @ 10:53 BST Apr 23
- SUP 1: 110-15/109-08 Low Apr 15 / 11 and the bear trigger
- SUP 2: 108-26+ 76.4% retracement of the Jan 13 - Apr 7 bull cycle
- SUP 3: 108-21 Low Feb 19
- SUP 4: 108-03+ Low Dec 12 ‘24 and a key support
Treasury futures continue to trade below last week’s highs. For now, recent gains are considered corrective and the bear cycle that started Apr 7, remains in play. The next resistance to watch is 111-25, 50.0% of the Apr 7 - 11 bear leg sell-off. A resumption of weakness would refocus attention on 109-08, the Apr 11 low and the bear trigger. Clearance of this level would resume the downtrend.
GERMANY: Policy Transmission Not Strengthened By Higher Debt Expenses - BUBA
The Bundesbank's April monthly report concludes that higher private sector debt expenses following interest hikes in the post-Covid inflation cycle have not strengthened ECB monetary policy transmission. Key excerpts below:
- "Significant interest rate hikes led to increases in interest-dependent variables such as interest expenses and debt servicing in particular. Nevertheless, the debt situation of the non-financial private sector did not deteriorate fundamentally overall. Increased nominal income in particular had a relieving effect."
- "The current and expected development of the debt situation of the non-financial private sector does not indicate any comprehensive balance sheet restrictions. The results therefore suggest that the transmission of monetary policy has not been strengthened by debt and is unlikely to be strengthened in the near future."
OUTLOOK: Price Signal Summary - EUROSTOXX 50 Futures Correction Extends
- In the equity space, a reversal higher in S&P E-Minis on Apr 9 highlighted the start of a correction. The trend condition has been oversold following recent weakness and gains have allowed this to unwind. The contract remains below important resistance points and the trend condition is bearish. A resumption of weakness would refocus attention on 4832.00, the Apr 7 low and bear trigger. Initial resistance to watch is 5425.57 (pierced), the 20-day EMA, ahead of 5528.75, the Apr 10 high and a bull trigger.
- EUROSTOXX 50 futures have recovered from Tuesday’s low. Recent gains highlight a corrective cycle and the rally marks an unwinding of a recent oversold trend condition. Resistance at the 20-day EMA, at 4971.53, has been breached. The next level to watch is 5105.00, the 50-day EMA. The trend structure remains bearish. Key support and the bear trigger has been defined at 4444.00, the Apr 7 low. First support is at 4812.00, the Apr 16 low.
