According to analysts from Danske Bank, next week, the European Central Bank will keep rates unchanged and they see that the flash PMI will indicate whether the euro area cycle is weakening further.
Key Quotes:
“In the euro area, we are awaiting the PMI figures due for release on Monday (...) We believe a further decline is pending for April. Several survey indicators have pointed to lower optimism, fear of a trade war and the euro appreciation last year is starting to show its impact on activity. We believe Manufacturing PMI will decline to 55.5 in April. Similarly, Service PMI has declined to 54.9 in March since peaking at 58.0 in January. We believe Service PMI is set for a further decline to 54.3 in April.”
“On Tuesday, the German Ifo expectations are due for release. Similar to the PMIs, the Ifo expectations have been declining in recent months, reflecting the lower optimism on the future.”
“The main event next week is the ECB meeting on Thursday. We do not expect any announcements with regards to policy changes from the governing council at this meeting.”
“We expect ECB to come with its first rate hike in December 2019, but with a 20bp size on the deposit rate hike instead of a 10bp hike in Q2 19. Recent data on inflation has disappointed compared to ECB projections, and the declining activity indicators should further lead the ECB to revise its GDP forecast downwards at the June meeting. Taken together, we believe the ECB is likely to postpone the first hike, as its current projections seem overly optimistic given recent developments.”
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