The eurozone is preparing foreighth consecutive cutting of the rates by the ECB, which should bring them to 2%. A decision expected from the markets, but which is part of a far more complex picture: growth growth, decreasing inflation, strong euro, new commercial tensions with the United States and spread at the minimums since 2021.
But from here on the path is less readable. Christine Lagarde will speak at the press conference While the hypotheses on a further cut between September and October are multiplying. But the balance will be delicate, between data that brake and budget duties.
The spotlights are also focused on Frankfurt: in addition to the rates, they will arrive New estimates on inflation and growthwhile from the United States the White House and the Fed, exposed to the risk recession, evaluates how to move.
Cautious Lagard on the future: every decision will be on the data
President Christine Lagarde will face this new cut with caution during the press conference on Thursday 6 June. The official press release reiterates that the choices will take place “meeting by meeting” on the basis of macroeconomic data.
The ECB seems to want to leave every option open: for now the rates are still reduced, but a fixed path is not defined. Any further cut will depend on the evolution of the economy and inflationary pressures.
Euro strong and duty uses the economic scenario complicate
In the evaluation of monetary policy, global factors enter: a stronger euro lowers the cost of imported goods, lightening the pressure on priceswhile the descent of energy prices helps to curb inflation.
According to the ECB’s Economist head Philip Lane, a strong euro combined with the drop in the price of oil and an increase in imports from China could contribute to “less inflation”.
On the commercial front, the tension with the United States was aggravated: President Trump increased the duties on steel and aluminum at 50%, a few days before a negotiating meeting between the US and EU delegations in Paris.
BTP-Bund spread at the minimum, government bonds fly
The bond markets welcome this accommodating scenario: the spread between the Italian BTP and the German bund has dropped around 96 basis points, to the minimums from the beginning of 2021.
Tax policy also contributes to the European state government bonds: Germany has approved a maxi-pachecke of tax cuts for businesses, which supported the Frankfurt Stock Exchange and contributed to containing yields on public debt.
Inflation down: the 2% goal is getting closer and closer
In the June Council, the ECB, in addition to lowering the rates, will also present its new macroeconomic projections. According to flash data, the inflation of the eurozone in May dropped to 1.9% on an annual basis, very close to the 2% goal. The slowdown of prices strengthens the idea that the road taken by the ECB is working: inflation approaches the 2% finish and the conditions finally seem a little more favorable.
The Fed ready to two cuts of the rates to avoid recession
In the United States, the Fed also smells the smell of braking. The beige book speaks of growth that slows down and prices that are dampened. Because of this, A Wall Street is already betting on at least two cuts of rates by the end of the year. The feeling is that even beyond Atlantic, a return to prudence is being prepared.
