ECB: Mortgage Rates To Drag On Consumption Until At Least 2030 – ECB Staff
ECB staff posted a blog today noting that the drag on consumption from mortgage rates could last “at least until 2030”. It follows ECB Chief Economist Lane on May 23 giving a presentation that included prior monetary policy tightening seeing a mean drag across six models on HICP inflation worth a little over 2.5pps in 2025 which then narrows to closer to a still large 2.0pps in 2027.
- “About a quarter of mortgages in the euro area are pure ARMs. […] The remaining lion’s share are FRMs. By design, many have been shielded from changes in the policy rate thus far.”
- “Around 10% of all mortgages are FRMs which will reprice to higher rates within the next three years. A further 20% will do so by 2030.”
- There is also “significant cross-country heterogeneity, with ARMs more prevalent in Spain and Italy and FRMs more common in France and Germany.”
- On differences in mortgage structure across the income distribution: “For households in the lowest 20% of the income distribution, 32% of mortgages are ARMs, compared with 17% for the highest quintile. This makes them more exposed to interest rate risk in the coming years than higher-income ones.”
- “By 2030, the rate paid by lower-income borrowers will still have increased more – mostly because higher-income borrowers will still hold a greater share of long-fixation-period mortgages which won’t be repriced by then.”
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PIPELINE: Corporate Bond Update: Updated Guidance
- Date $MM Issuer (Priced *, Launch #)
- 04/28 $Benchmark Alphabet 4pt 5Y +32, 10Y +47, 30Y +62, 40Y +70; also in Euro: 4Y, 8Y, 12Y, 20Y and 29Y.
- 04/28 $1.125B #Consumer Energy $500M +5Y +67, $625M 10Y +87
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- 04/28 $Benchmark General Dynamics 10Y +110a
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- 04/29 $Benchmark KFW 5Y SOFR+45a
- 04/29 $Benchmark Swedish Export Credit Corp 3Y SOFR+48a
GOLD: Strong Intraday Recovery With USD and Equities Faltering
Spot Gold has recovered well through the European afternoon, with the USD faltering and global equity futures rolling over. Gold is now +0.4% on the session at $3330/oz. The move away from the April 22 all-time high of $3,500.10 is considered corrective and has allowed an overbought condition to unwind. With the positioning backdrop also cleaner, gold stands to benefit well from any re-intensification of tariff or geopolitical tensions.
- Although US Treasury Secretary Scott Bessent has issued a statement on social media touting "substantive movement" towards trade deals with India, South Korea, and Japan, underlying uncertainty surrounding any US policy action in the current environment remains high.
- Key support in Gold remains the 20-day EMA at $3219.4, with shallower pullbacks considered corrective.
- The latest CFTC COT report, covering data up to April 22, indicated a 27k pullback in non-commercial net longs – a function of both reduced long contracts and increased shorts. Net longs now stand at 175k contracts, with MNI’s 52-week Z score at a multi-year low of -2.6.
EUROPEAN INFLATION: MNI Eurozone Inflation Preview – April 2025
We've just published our preview of the April Eurozone flash inflation round - DOWNLOAD FULL PDF HERE
Energy Pullback To Outweigh Potential Services Re-Acceleration
- The Eurozone April flash inflation round sees Spain kick off proceedings on Tuesday (April 29), before France, Germany, and Italy follow on Wednesday (April 30). With much of Europe closed for Labour Day on Thursday (May 1), the Dutch and Eurozone-wide releases come on Friday (May 2).
- MNI consensus is for the core rate to accelerate slightly to 2.5% (vs 2.4% prior), with the late timing of Easter potentially adding upside risks to travel-related services components. However, a pullback in energy prices is expected to more than offset this dynamic, helping headline HICP ease to 2.1% Y/Y (vs 2.2% prior).
- More stringent-than-expected US tariff policy and a dovish April decision has resulted in a dovish tilt for near-term ECB policy expectations. A 25bps cut at the next meeting in June is now fully priced in ECB-dated OIS, and there is 64bps of easing priced through December. That’s almost a full 25bp cut more than what was priced at the beginning of this month, prior to the US’s reciprocal tariff announcements.
