ECB: Lagarde: Doesn't Settle On Upside Or Downside Inflation Risk
Q: Last week, Isabel Schnabel, again, explained in detail why she sees the balance of risk to the upside. You said you didn't discuss so much about the topic today. But can you tell us, did more governors today share Isabel Schnabel view compared to July? Could you share some brief insights with us?
A: We have now agreed on the strategy review and that one of the changes that we have all agreed is to discuss around the baseline the risks. We had a good discussion of risks for both growth and inflation. We do not ever settle on risk to inflation as to whether it is to the upside to the downside.
- We mention a number of factors that constitutes risk to the upside and risk to the downside. And this is all sort of highly technical and subtle, because depending on where you are and where you want to be, those risks to the internet, to inflation, to the downside or to the upside are either good or bad. […] I'm sure that you will hear people say, well, it's more balanced, but bit to the downside. Yeah, of course… but risks are going to arise. Some of them will be new. Challenges will be new.
Q: In July, your communication was interpreted as more hawkish. Were you surprised by that?
A: I’m not a hawk or a dove. I’m an owl. In my July communication I expressed exactly what was felt by a very large majority of my governors around the table. And I think I've repeatedly said that we continue to be in a good place which does not mean that we are on a pre-determined path.
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BONDS: Binds are under heavy selling pressure
- Most Desks have not seen a clear driver for that latest push lower especially in German Govies, which has been led by the German long end, as previously mentioned the 30yr Yield has reached its highest level in 14yrs, since August 2011.
- Volumes did pick up, with 30k Bund sold in the past 56 minutes, and Immediate support for Bund is at 129.12, the August low
- The US Rally has also faded, TYU5 is back to pre CPI levels, with very heavy seeling going through.
BUNDS: German 30yr Yield highest in 14yrs
- German 30yr Buxl falls towards 115.00, helping push the Yield above the 2023 high of 3.263%, to reach its highest printed level since August 2011.
- The next big upside target would be situated at 3.30%, which today would equate to 114.37.
US DATA: Travel Categories, Medical Services Largely Responsible For Core Uptick
As usual, core services contributed the majority of overall core CPI in July, worth around 0.28pp of the 0.32% M/M reading. That's up from 0.19pp in June (on a core CPI reading of 0.23% M/M).
- As seen in the table below, the increased services inflation pressure vs June's report was almost entirely due to airfares (0.05pp more of a contribution), lodging (0.03pp more, albeit still contributing negatively), and medical services (0.02pp more). The key housing categories had a relatively flat contribution vs June.
- Core goods once again contributed 0.05pp, though the composition was different this month: used and new vehicles contributed slightly positively (after subtracting 0.04pp in June), with all other core goods seeing their contribution fall to 0.04pp from 0.09pp prior.
