Monex: Easing cycle to begin in April

Monex: Easing cycle to begin in April

22 januari 2024

ECB
Inflatie (01)

Opinions differ between doves and hawks as to the optimal time to start the easing cycle. However, most, including Christine Lagarde, are pushing back on market expectations for ECB cuts.

While we don’t expect the ECB to change its stance as soon as this week, we tend to agree with markets that the easing cycle will likely begin in April. Incoming data from now, starting with the next round of PMIs in the eurozone on Wednesday, will again start to weigh on ECB pricing as the probability of a recession in the single market increases, as per our base case. In fact, several economists are already starting to align with our view, announcing that this may be the first recession of at least two years since 2009.

Pending more information ahead of the release of preliminary PMIs for January, as well as aggregate data for the euro area as a whole, we maintain our view that the ECB’s hawkish message, will likely to be reiterated this week, lacks credibility. With weak growth likely to weigh on inflation pressures further in the coming months, this should see the ECB at the forefront of the DM easing cycle euro’s expense in the near-term.

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