ANZ sees ECB hiking again in December, lifting deposit rate to 2.75%
At a Glance
The desk sees a heightened probability of a further ECB rate hike in December, aligning with ANZ's expectation of a 2.75% deposit rate. This outlook is underpinned by the escalating geopolitical tensions impacting energy prices, while positioning in the euro markets is likely to rely heavily on upcoming economic data and geopolitical developments. Per the full note , ANZ suggests markets have already priced in a substantial chance of an October hike, making any additional shifts in the ECB’s stance key news for traders.
Key Takeaways
- 01ANZ predicts another ECB rate hike in December to 2.75%.
- 02Market positioning is highly contingent on geopolitical developments and inflation data.
- 03ING’s stance presents a contrasting view, framing the recent ECB hike as isolated.
- 04Watch EUR/USD for responses to ECB communications and data releases.
Full Analysis
What the desk is arguing
The desk interprets the current state of euro interest rates as teetering on the brink of further tightening, driven by both inflation concerns and geopolitical risks. ANZ's perspective that another incremental hike is on the horizon underscores the contrasting outlooks between firms like themselves and ING, which perceives the latest increase as a precaution rather than the start of a sustained tightening cycle.
Supporting this view, ANZ cites a 90% market probability of the ECB raising rates in October, with a subsequent hike in December also considered likely. This indicates a market that is responsive to external pressures, particularly the ongoing Middle East conflict affecting energy costs, which both ANZ and ING agree are central to the broader inflation landscape.
The alternative read would be, as ING posits, that unless inflation indicators show marked second-round effects from rising energy costs, further hikes may not be justified, potentially deterring traders from building positions around an anticipated December hike.
Where it sits in our coverage
The desk's outlook suggests a strategic position near the upper end of the anticipated range, with our consensus currently untrodden in this area. Although no internal targets are available, aligning projections from jpmorgan eyeing 1.10 and bofa suggesting a more conservative 1.04 highlight the spectrum of expectations leading up to December.
This view indicates a potential divergence among key players, with jpmorgan advocating for optimism in the euro markets while bofa remains circumspect amidst uncertainties.
How other firms see it
Firms aligned with ANZ's viewpoint may include jpmorgan, which leans toward a more aggressive ECB policy stance. Meanwhile, those on the contrary side like bofa display caution regarding the likelihood of sustained hikes in light of inflation data.
Critical pairs to watch in this context include EUR/USD, which will likely reflect the path of ECB policy amidst fading inflation pressures. Movements in USD/JPY may also present spillover effects from ECB sentiments, emphasizing the interconnectedness of these economic indicators.
What the calendar says
With no upcoming high-impact events slated on the calendar for euro rates, traders should focus intently on geopolitical developments including shifts in energy prices, which will serve as key indicators of the ECB's future direction.
Market Implications
Traders should monitor any movement towards the 2.75% target region, particularly in reaction to geopolitical events impacting energy prices. The outcome of the expected October ECB hike will also serve as a critical signal for positioning ahead of December.
From the original
The split between ANZ and ING captures the core tension facing euro rates markets right now: whether Thursday's hike marks the ECB essentially done, or the first of at least one more move before year end. ANZ's call for a December hike to 2.75%, alongside its estimate of a roughl
Related speeches
4 itemsANZ sees ECB hiking again in December, lifting deposit rate to 2.75% - investinglive.com
Rates: Dealing with the rate hike narrative
The desk posits that while the market may be pricing in aggressive rate hikes, a more moderate approach is warranted based on the current rate hike narrative. Per the full note by Padhraic Garvey at ING, the desk suggests that even though hikes may not fully materialize, the anticipation and positioning toward the hikes will drive market dynamics. This perspective is especially relevant for the EUR/USD pair, where it appears the market is leaning towards a 25 basis point hike from the ECB, pushing the deposit rate toward 2.75% over the next year, despite skepticism about the delivery of all projected hikes. With the current EUR/USD trading at 1.1679 and firm targets indicating a December consensus around 1.2000, there is room for volatility in response to ECB messaging and the rate environment.
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