MNI ECB Preview: We Want To Hike, Just Not Yet

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Executive Summary

• The ECB is again expected to leave its three key rates on hold on Thursday, including a 2% deposit rate, but with the view that it’s getting much closer to hiking in response to the ongoing Middle East conflict.
• Indications on the likelihood of a June hike will be key.
• Ceasefires and more patient ECB speak have seen April hike pricing drift to marginal levels but a 25bp hike in June is 80% priced and with a second 25bp hike in September near enough fully priced.
• See our in-depth review of ECB speak including market-moving Lagarde appearances below. 
• Open-ended commentary from ECB’s Lagarde is likely to keep June hike expectations firmly alive with investors working off ECB baseline forecasts factoring in hikes.
• There have been mixed developments across the ECB’s checklist for monitoring second round effects, with PMIs for instance seeing a three-year high for selling prices but the SAFE survey looking more contained. The weight Lagarde puts on different areas will have an important bearing on the press conference as will attention given to growing downside growth risks as evidenced by the services PMI hitting a 62-month low.
• Note that we publish this preview before Tuesday’s Bank Lending Survey, Wednesday’s business and consumer surveys from the European Commission and Thursday’s flash April HICP and Q1 GDP reports.