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Outlook Remains Bullish


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ECB Expected To Deliver Another 75bp

  • Markets have largely priced another 75bp hike by the ECB this week, with sell-side analysts also appearing to unanimously forecast such a move (based on the 17 previews we have seen).-
  • Note that some of the most hawkish members of the GC (Klaas Knot, Boštjan Vasle and Peter Kažimír) will not be voting at this week's meeting. Nonetheless, there is good reason to still expect a 75bp move:
  • 1. Inflation continued to surprise higher last month and is now just a hair's breadth away from double-digit territory.2. Having set the precedent in September of hiking in such large increments, the bar is somewhat lower for hiking in similar sized moves going forward.
  • 2. Several GC members have argued that policy tightening will continue even as economic activity slows.
  • 3. Even the more dovish GC members concede that further policy rate hikes are needed. Again, suggesting a particularly hawkish bias at the moment.
  • 4. Hiking at a slower pace would mean extending the timeframe for reaching 'neutral' (a level still not specifically defined by the ECB) when many on GC seem to want to get to this level as quickly as possible.

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