US-EU: Sefovic-Agreed w/Lutnick To Intensify Technical Engagement On Tariff Deal
Delivering doorstep comments ahead of a meeting of EU trade ministers, European Commissioner for Trade Maros Sefcovic says that "Yesterday I had another constructive call with the US Secretary of Commerce Howard Lutnick," and went on to confirm that "We have agreed to intensify our engagement at technical levels and I am in regular contact with him. I think we will see each very soon, most probably here in Brussels or at the OECD meetings." Livestream of doorsteps, and the post-meeting presser at 0830ET/1330BST/1430CET can be found here.
- The prospect of a US-EU trade deal has come into stark focus in the wake of Washington, D.C.'s deal with the UK, its unexpectedly productive first talks with China, and reports of swift deals with India, Japan, and South Korea being in the offing.
- Also delivering doorstep comments, Sweden's Trade Minister Benjamin Dousa says that "a trade deal like the US closed with the UK won't work for the EU", adding that if such a deal were offered, "the US would have to expect countermeasures then".
- Late on 14 May, Politico reported that, according to four EU diplomats, the US had sent the EU a letter in response to Brussels' previous outlining of potential concessions it might be willing to offer. As the article notes, this is "the first positive concrete engagement from the Donald Trump administration since the two sides paused their wave of retaliatory tariffs."
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ECB: Q1 BLS Suggests Limited and Predictable Impact From QT
The Q1 BLS suggests a limited and predictable impact of ECB QT on banks market financing conditions and liquidity positions:
- “The reduction in the ECB monetary policy asset portfolio had a small negative impact on euro area banks’ market financing conditions and liquidity positions over the last six months, contributing to an increase in the holdings of euro area sovereign bonds for the first time since early 2015”.
- “Banks expect these developments to continue over the next six months, while the impact on lending conditions remains muted, reflecting the measured and predictable adjustment of the ECB monetary policy portfolio”.
- Amid recent bond market volatility, there are differing views on the outlook for QT, with some looking for a continuation of the currently prescribed rundown, alongside playing down the impact of U.S. trade policy on ECB rates, while others are more open to the idea of the Bank slowing its balance sheet runoff. Speakers since April 2 (Knot, Villeroy, de Guindos, Cipollone and Lagarde) have appeared relatively relaxed around the state of recent market/liquidity conditions, but highlighted that the ECB is ready to use all tools at its disposal if required.
ECB: Q1 BLS Consistent With Waning Restrictiveness; But Firm Loan Demand Weak
The results of the ECB’s Q1 BLS survey are consistent with the Governing Council’s description of “meaningfully less restrictive” policy rates, with credit standards easing (or seeing smaller net tightening) than in Q4. While consumer credit demand is increasing, the fall in firm loan demand suggests the economy would still benefit from lower interest rates, particularly given the current level of policy uncertainty. Overall, the survey shouldn’t change expectations for a 25bp cut on Thursday, but may contribute to wording tweaks in the policy statement.
Firms:
- Banks reported another net tightening of credit standards (net 3% of banks), driven by “driven by higher perceived risks related to the general economic and firm-specific outlooks”. However, this was below Q4 2024’s net 7% figure, and below firm expectations from last quarter – particularly in Germany and France. Banks expect standards to tighten by net 5% in Q2 2025.
- Firm demand for loans moved back to negative territory (net -3% of banks vs +3% in Q4), “mainly owing to a negative contribution from firms’ inventories and working capital and despite the support from declining interest rates”. Some banks highlighted geopolitical uncertainty as an impediment to long term planning. Banks expect a small increase in loan demand in Q2.
Housing Loans and Consumer Credit:
- Competition amongst banks prompted a net easing of housing loan standards (net -7% vs +1% prior), while risk perceptions drove a tightening in consumer credit standards (net +3% vs +6% prior). Banks expect a net tightening in both categories in Q2.
- Net demand for housing loans increased strongly (net +41% vs +42% prior), largely driven by falling interest rates. Lower rates also supported consumer credit demand (net +10% vs +2% prior). Banks expect continued increases in demand in Q2.
