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ECB VIEW: 3 Sell-Side Names Now Look For Oct Cut

ECB VIEW
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This week’s softer-than-expected flash PMIs and national CPI data has resulted in a sharp dovish repricing in the front end of the EUR strip, with ~19bp of cuts now priced for the ECB’s October meeting vs. ~5bp late last Friday.

  • 3 sell-side names have changed their official ECB call on the back of the data:
  • BNP: We now look for a 25bp cut in October on risk management grounds. Recent data point to an increased risk of a more pronounced deterioration in economic activity, while the near-term inflation outlook appears benign. Expect another cut in December, followed by a quarterly pace of cuts in 2025 as the economy re-gains some momentum.
  • HSBC: A further weakening in the demand outlook could raise the risk of a more material inflation undershoot of target. We now think that the ECB will cut rates by 25bps at every meeting from October until April 2025, when the key deposit rate reaches 2.25%. At this point, policy should be close to neutral or even mildly stimulative.
  • RBC: Details of GDP are not encouraging, while leading indicators have weakened substantially. The risk (to growth) remains to the downside. Even the more hawkish ECB members seem to have softened their rhetoric. We now expect that the ECB will reduce rates again in October. We Also expect the ECB to signal that the faster (cutting) pace is here to stay. We reduce our terminal rate expectation to 2.25% come April ‘25.
  • Note that several other sell-side names warned of risks of an October cut/larger December cut following the PMIs, without formally changing their call. We await their CPI reactions in the coming hours/days.
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This week’s softer-than-expected flash PMIs and national CPI data has resulted in a sharp dovish repricing in the front end of the EUR strip, with ~19bp of cuts now priced for the ECB’s October meeting vs. ~5bp late last Friday.

  • 3 sell-side names have changed their official ECB call on the back of the data:
  • BNP: We now look for a 25bp cut in October on risk management grounds. Recent data point to an increased risk of a more pronounced deterioration in economic activity, while the near-term inflation outlook appears benign. Expect another cut in December, followed by a quarterly pace of cuts in 2025 as the economy re-gains some momentum.
  • HSBC: A further weakening in the demand outlook could raise the risk of a more material inflation undershoot of target. We now think that the ECB will cut rates by 25bps at every meeting from October until April 2025, when the key deposit rate reaches 2.25%. At this point, policy should be close to neutral or even mildly stimulative.
  • RBC: Details of GDP are not encouraging, while leading indicators have weakened substantially. The risk (to growth) remains to the downside. Even the more hawkish ECB members seem to have softened their rhetoric. We now expect that the ECB will reduce rates again in October. We Also expect the ECB to signal that the faster (cutting) pace is here to stay. We reduce our terminal rate expectation to 2.25% come April ‘25.
  • Note that several other sell-side names warned of risks of an October cut/larger December cut following the PMIs, without formally changing their call. We await their CPI reactions in the coming hours/days.