ECB to sound upbeat tone overall – TDS

The research team at TDS explains that the focus for today will be the ECB’s rate decision, but we also have German inflation data for April.

Key Quotes

“We’ll get a better picture of where it’s tracking with the regional data released through the morning, but our early forecast calls for HICP to rebound from 1.5% to 1.8% y/y, a touch below consensus of 1.9%. For the ECB we’re looking for an upbeat tone overall, as Draghi focuses on the continued strength in economic momentum.”

“The biggest risk of a surprise in our view is that the ECB upgrades the balance of risks to growth from the downside to broadly balanced, to which we attach a 30% probability, as the minutes noted that “a number” of Governing Council members were already leaning that way in March. While markets are widely looking for that change in language to come in June, it would be a bit of a surprise to see it pulled forward quite so much. However, our base case sees forward guidance and all other key language unchanged, and while the upbeat message on growth would normally push the EUR higher, we look instead for a fairly steady range after the big pop higher on the back of Sunday’s French election. We may see a larger move in rates though, which don’t appear to be as stretched.”