ANZ sees ECB hiking again in December, lifting deposit rate to 2.75%
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.
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.
How firms align with this view
Aligned with the desk view
Contrary positioning
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.
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.
Risks to this view
A sharper-than-expected downturn in inflation or a resolution to current geopolitical tensions could jeopardize the forecast for additional ECB tightening, leading to marked shifts in market sentiment and positioning.
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 roughly 90% probability the market has already priced in for an October increase, points toward a more sustained tightening cycle than ING's read, which frames the latest move as an insurance hike unlikely to be repeated absent a genuine second-round inflation problem. For EUR, the practical takeaway is that positioning around the ECB's next moves will likely hinge less on the hike itself, which was fully expected, and more on how energy prices and bond yields evolve from here, since both banks agree that outlook is unusually dependent on the trajectory of the Middle East conflict.
ANZ thinks the ECB isn't finished hiking this year, while ING reads Thursday's move as a one-off insurance hike rather than the start of a longer tightening run. Summary: ANZ Bank says markets are pricing in a roughly 90% probability of an ECB rate hike in October and expects a further 25 basis point increase in December, which would take the deposit facility rate to 2.75% ANZ attributes the pricing to the escalating Middle East conflict and its impact on energy prices, and suggests the ECB may be inclined toward gradual further tightening ING describes Thursday's confirmed 25bp hike, which brought the deposit rate to 2.5%, as an "insurance" move intended to stay ahead of the curve rather than a response to broad-based inflation pressure ING notes that measures like core and services inflation, along with survey-based inflation expectations, show little evidence of second-round effects from higher energy prices The ECB's new staff projections, per ING, show headline inflation unchanged at 3% for this year, with 2027 and 2028 forecasts revised up to 2.5% and 2.1% respectively, while growth was revised slightly higher to 0.9% this year ING says Lagarde's press conference struck a "slightly hawkish aftertaste" but the bank remains skeptical the ECB will deliver additional hikes unless the Middle East situation and energy prices persist or worsen Still to come this weekend: Coming up: What Lagarde may say next, two days after the ECB's rate rise Two bank research notes offer contrasting views on how far the European Central Bank is willing to go after Thursday's rate decision, which lifted the deposit facility rate by 25 basis points to 2.5%. ANZ Bank expects the tightening cycle to continue, forecasting a further 25 basis point hike in December that would take the deposit rate to 2.75%, and pointing to market pricing that already assigns a roughly 90% probability to an October increase.
The bank ties its call directly to the escalating conflict in the Middle East and its effect on energy prices, arguing the ECB may be inclined to keep tightening gradually as long as that pressure persists. ING takes a more cautious view of what comes next, even while agreeing that Thursday's move made sense. The bank describes the hike as falling into the category of an "insurance" rate rise, a move intended to keep the ECB ahead of the curve and prevent higher energy costs from feeding through into broader price pressures, rather than a response to an economy that is genuinely overheating.
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