Rates Spark: Many Known Unknowns to Argue for More ECB Easing
A long list of downside risks means the ECB may still have to ease more eventually.
With lurking growth, disinflation and geopolitical risks, we continue to see the balance tilted towards more ECB easing.
- France is one of these risks and despite new efforts, there is a considerable chance we have new elections by year-end.
- Growth remains weak and survey data such as the ZEW indices underline the fragile recovery path of the eurozone.
- Lower oil prices add to the disinflationary risks, together with our view that the euro should still strengthen going forward.
Given the long list of risks, we don't see markets pricing out a last ECB cut anytime soon
Senior European Rates Strategist Whilst volatility has fallen significantly, we do think the risk is tilted towards lower 2Y rates.
Author's summary: ECB may ease more due to downside risks.