ECB preview: Een langverwacht maar weinig verrassend besluit
Hugo Le Damany en François Cabau, econoom en senior eurozone-econoom bij AXA Investment Managers, geven commentaar voorafgaand aan de ECB-vergadering van volgende week:
De Raad van Bestuur van de ECB zou de drie belangrijkste beleidsrentetarieven met 25 basispunten (bp) moeten verlagen tijdens de vergadering in juni, die gepland staat op 7 juni.
- Recente gegevens over inflatie, lonen en productiviteit - de belangrijkste criteria voor de ECB - hellen lichtjes over naar de havikistische kant, maar blijven hoogstwaarschijnlijk binnen de aanvaardbare afwijkingsmarge, vooral omdat sommige van die gegevens vertekend zijn door eenmalige gebeurtenissen.
- Het debat moet verschuiven naar het bepalen van een pad voor mogelijke volgende verlagingen. Maar wij denken dat de ECB dit niet zal doen en zal vasthouden aan haar “data-afhankelijke modus”.
- De toon van de persconferentie zou licht dovish moeten zijn voor overwegingen op de korte termijn, waarbij wordt toegegeven dat de “kosten” om de rente nu te verlagen gemakkelijker zijn omdat de reële rente grotendeels positief blijft en omdat men het schuchtere herstel niet in de kiem wil smoren.
- Maar aan de ietwat havikistische kant zal mevrouw Lagarde waarschijnlijk zeer voorzichtig blijven en zich niet vastleggen op een echte renteverlagingscyclus omdat de inflatie in de dienstensector nog geen beslissende ommekeer heeft gemaakt en ze nog steeds geen vertrouwen heeft in de drie criteria die ze heeft genoemd.
- De ECB zal ook haar geactualiseerde macro-economische projecties bekendmaken. Wij verwachten een sterkere bbp-groei, waarschijnlijk rond 0,8% in 2024, en een hogere nominale inflatie, versterkt door een upgrade van de kerninflatie (+0,1/0,2pt in 2024) en oliefutures.
Many ECB Governing Council members have already clearly communicated it would cut interest rate by 25 bps at its June meeting if there was no major macroeconomic shock. Recent data erred slightly on the hawkish side but have broadly been in line with expectations.
Yesterday morning, flash May headline inflation and core respectively rebounded to 2.6% and 2.9%, boosted by another push from services. A large part of it was widely expected, driven by a one off in Germany after they implemented a cheap train ticket in May 2023. We also suspect a small upside surprise in booming economies such as Portugal and Spain. But on the other side, French and Italian services Consumer Price Index came much softer, declining by 0.3 percentage points (pt) and 0.2pt respectively. Services inflation came at 4.1% Year on Year (YoY) in the Eurostat data, and the ECB seasonally adjusted retreatment came out at 5.2% (+0.2 pt from April) on a three-month annualised basis. But as stated by Lagarde in April, the surprise is limited as the ECB was expecting inflation "to fluctuate around current levels in the coming months".
That said and admitting the ECB will cut interest rate next Thursday - our strong held baseline, the "new" quest is to define a path. But we believe the ECB will refrain to do so and will stick to its "data dependence mode". We know from different ECB speeches they closely monitor three criteria on which they want to achieve further confidence: wages and the evolution of wages; profits, to make sure that unit profits absorb as much as possible of the wage increases combined with mediocre productivity.
On that regard, we don't think they have achieved such level of confidence. Indeed, Q1 wages data have surprised to the upside to 4.7% (YoY) while the ECB probably expected a small decline from Q4 (4.5%). One-off in Germany due to delayed negotiation deal explained the uptick, as almost all other countries (excepted Austria) have already engaged in deceleration, also confirmed by Indeed Wage trackers. Even Nagel, the German Governor, played down the wage figure and stated, "If things stay as they are the probability increases that we could take the first rates step in June". So, not enough to stand in the way of starting to remove some monetary restriction, but not enough to steer a clear path ahead.
But combined with wages, the productivity is still not showing any improvements in the near term. Q1 employment grew by +0.3% Quarter on Quarter, the same pace than for GDP which means flat productivity at best. The ECB should be conciliatory as their March forecasts were +0.1% in 2024 but +1.2% in 2025. On top of that, euro area April unemployment rate declined to a new low at 6.4%.
Last but not least, we have just published a note suggesting that the ECB implied forecast on euro area corporate profits for 2024 was probably flat (+0.2% vs 2023) as they assumed companies would absorb on margins a large part of rising labour cost. The ECB will only have Q1 corporate profit details at the beginning of June, but some real time proxies suggest they could be still resilient in the middle of the year.
A "dovhawkish" press conference
Overall, the tonality of the press conference should be slightly dovish for near term considerations, admitting the "cost" to reduce interest rates now is easier as real rates remain largely in positive territory and because they don't want to kill the timid recovery in the bud.
But on the slightly hawkish side, Ms Lagarde is likely to remain very cautious to not pre commit to a proper rate cut cycle guidance as services inflation has not engaged yet in a decisive turnaround while they still lack further confidence on the three criteria they have flagged.
Until the very last moment, it will be important to monitor the behaviour of US treasury yields and its pass-through to European government bond yields and EURUSD (after this week sell off) as this can influence the tonality of the speech. We believe the ECB can afford to lead the US rate cycle by one or two cuts, but beyond this, the impact of an uncertain Fed would probably be too important on FX (ECB models pencils in a 1% NEER leads to around +0.2-0.3pt of inflation over 2-3 years). Yet, symmetrically, contagion to Europe from higher US yields could offset the FX effect.
Update of macroeconomic projections
Since March, data has broadly evolved as the ECB was expecting, unless maybe on Q1 GDP which came at +0.3% while the ECB pencilled in +0.1%. The stronger carry over should boost euro area growth to something around 0.7% (+0.2pt) for 2024 if subsequent pace is maintained.
On inflation, we are also foreseeing small changes, tilted to the upside. Core inflation was 0.1pt higher in Q1 at 3.1% (YoY) and is currently running 0.2pt above in Q2. We believe the ECB should keep the same disinflation pace but that still implies an uptick of 0.1-0.2pt on 2024 core inflation (most likely at 2.7-2.8%). However, 2025 and 2026 forecasts should remain unchanged at 2.1% and 2% respectively. Headline should also be boosted by higher oil and gas futures, worth approximately +0.1pt on headline. That means headline inflation should be upgraded to 2.5% in 2024 (+0.2pt), an potentially a bit in 2025 to 2.1% (0.1pt) and 2% (+0.1pt) in 2026.
Also, worth to have a look at compensation per employee (March: 4.5% in 2024; 3.6% in 2025) and labour productivity (+0.1% in 2024; +1.2% in 2025) which are key assumptions the ECB currently monitors.
Notes to editors
All data sourced by AXA IM as at 31 May 2024
