ECB: Hawkish communication on good grounds – Nomura


Analysts at Nomura suggest that hawkish communications from ECB officials this week have surprised the market, but their optimistic stance is on good grounds, in Nomura’s view.

Key Quotes

“A strong recovery in wages may be behind their optimistic stance. Even though wage momentum has been weaker than the jobless rate implies, we may be finally seeing the recovery. Negotiated wage rises in Q1 accelerated to +1.86% from 1.56% the previous quarter. ECB officials’ confidence in the Phillips curve may be now higher, as wages finally begin to react to the positive economic fundamentals.”

“ECB officials’ recent hawkish communication is partly intended to send a message that ECB policy will not be affected by Italian politics, but Mr Praet’s comments suggest the ECB’s view on inflation is also improving. Markets became too pessimistic on the pace of ECB normalisation, on both the timing of QE termination and rate hikes. As we have been expecting, ECB QE looks very likely to be terminated by year-end, which could open the door to a rate hike from mid-2019.”

“Further EUR recovery now looks likely into the ECB meeting and its annual gathering in Sintra, as we expect the ECB to maintain its optimistic communication on the back of the stronger wage and inflation data.”

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