ECB: Context Behind Lane’s No Reason 25bp ECB Move Will Always Be The Default
Apr-24 13:34
ECB Chief Econ Lane offered balanced comments on Bloomberg TV earlier today. The headline *LANE: NO REASON TO SAY THAT 25 BP ECB MOVE ALWAYS THE DEFAULT" - bbg - was seen in dovish light after Rehn’s openness to a larger cut earlier this morning. It did however come about when Lane was explicitly asked on Rehn's remarks and he couched it very much as philosophical and noted there isn’t a need to be dramatic as we aren’t in a situation where there has been a dramatic change in the external environment or price pressures.
- “If I take a longer-term, 2030 perspective, there’s a lot of grounds to have renewed optimism. That essentially with more fiscal support, the credibility of delivering our 2% inflation target is stronger. The case for the European economy to be more resilient and to grow from a domestic source rather than an export machine is more credible.
- But we have to navigate from where we are now. Immediately in the short term, with euro appreciation and a big drop in energy prices, the disinflationary forces are there. I wouldn’t load it all onto trade policy as we’re also seeing a clear portfolio shift going on, which is the way you can reconcile euro appreciation in the middle of this trade discussion.
BBG: This begs the question why you don’t add more aggressively?
- A very important narrative we had last week was resilience. […] All the domestic engines are there. The economy should be growing even marking down from trade negative. This is why we are not in a situation where we see some dramatic change in the external environment or price pressures and so on. Steady is ok I think.”
BBG push back on latter point re no dramatic change in uncertainty and higher risk of recession:
- Our overriding theme of course is uncertainty, let’s not get ahead of ourselves in terms of being too sure of any path of the economy. External forecasts show fairly modest markdowns for the European economy. The US has a major trade policy issue with the world. We have a trade policy issue with the US, an important trading partner but not our only one. It’s a mark down from a growth rate of around 0.9% to a little bit less. Let’s see how much of a markdown. If you look at the surveys this week, they have elements of people being concerned, but they also have elements saying right now we’re busy. Manufacturing is a little busier than it was, which could be some front-running of tariffs but also remember the recovery narrative.
BBG on Rehn saying should be open to larger rate cuts:
- “Philosophically, we don’t pre-commit to any rate path. This is why, and the Governing Council tries hard to maintain this. You can express that in different ways and in particular there is no reason to say we are always going to do the default 25bp [cut]. Philosophically, I agree with that but what I said to you earlier on, the growth performance is going to be marked down but it’s still a growing economy and we have inflation to the downside but we don’t need to be too dramatic about it.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
US: MNI POLITICAL RISK - Trump Signals Narrower April 2 Tariffs
Mar-25 13:33
Download Full Report Here
- Markets rallied yesterday after Trump signalled his April 2 reciprocal tariffs may be narrower than anticipated.
- Trump touted a USD$20 billion investment from Hyundai as a "clear demonstration" that tariffs work.
- Trump threatened secondary tariffs on any country that buys Venezuelan O&G.
- The Trump administration is dealing with a major scandal after a journalist was inadvertently included in a Signal chat group that discussed sensitive military operations. The chat included comments likely to rile European allies and opens the door for a Democrat messaging offensive.
- EU trade chief Maros Sefcovic is in Washington today to discuss tariffs with Commerce Secretary Howard Lutnick and USTR Jamieson Greer. An Indian team is also in Washington seeking tariff exemptions.
- The “Big Six” Republican leaders will hold a meeting with White House officials today to discuss Trump’s legislative agenda.
- Senator John Kennedy (R-MS) said Trump is “very interested” in having Congress codify DOGE cuts.
- Trump is cutting around $3 billion from Fiscal Responsibility Act side deals.
- A Florida special election on April 1st will provide hard data on the mood in the electorate.
- US and Russian teams in Riyadh failed to agree on a joint statement after 12 hours of talks yesterday.
- Defense Secretary Pete Hegseth will depart this week on an Indo-Pacific tour
- Poll of the Day: Just 20% of US voters say tariffs should be a priority for Trump.
Full article: US DAILY BRIEF
US DATA: Increasingly Pronounced Stagflation Signals In Philly Fed Services
Mar-25 13:26
The Philadelphia Fed's Nonmanufacturing Business Outlook Survey showed a continued deterioration in regional services activity after a brief period of exuberance, mirroring the drop in the neighboring Empire State (NY Fed) survey. The regional general activity index dropped 24 points to -32.5, marking the lowest level since the start of the Covid pandemic. New orders fell to a 23-month low (-19.5) and the 6-month outlook for activity fell to a post-2020 low (-24.0).
- Per the Philadelphia Fed, "The indexes for general activity, new orders, and sales/revenues remained negative, with the former two declining further. On balance, the firms reported a decrease in full-time employment. Both price indexes rose and indicate overall increases in prices. The respondents expect declines in growth overall over the next six months both for their firms and in the region."
- This survey only has data back to 2011 but the currently depressed level of business activity has only been matched in periods of extreme weather (2011) and the Covid pandemic (2020).
- This is a very different story than being told by the flash March S&P PMI which rose to a 3-month high 54.3 in March, so the state of the services sector amid broader government policy uncertainty and possible deterioration in domestic demand remains obscured.
- One clearly consistent theme across these surveys though is inflation: prices paid rose to a 16-month high (36.0), with prices received up to just a 3-month high (8.4), potentially suggesting margin pressures at services firms (the March flash PMI noted an 18-month high in service sector prices paid).
- With manufacturing surveys including the Philly Fed's showing similar price pressures, it is hard not to get a sense of ongoing "stagflation" in the economy, in the soft/survey data at least so far.
EQUITIES: US Cash Opening Calls
Mar-25 13:25
SPX: 5,791.8 (+0.4%); DJIA: 42,737 (+0.4%/+154pts); NDX: 20,258.8 (+0.4%).
Related bullets
Related by topic
EUR/USD
Bunds
Germany
Euribor
European Central Bank
Schatz
Bobl
