Goldman: ECB Front-End Broadly In The Right Place

Goldman Sachs note that “ECB commentary over the last week has been hawkish on balance, with some Governing Council members discussing the possibility of hikes beyond the July meeting. We think these comments are unlikely to catalyze a large repricing so far out from the September meeting (or beyond), especially given the implicit 25bp per meeting speed limit on policy tightening following the ECB’s forgoing of a 50bp hike in May. As a result, the rate path beyond the next meeting will hinge on incoming activity and price data, and the passage of time rather than soft policy guidance in our view. With the market still focused on U.S. banking issues, we think the combination of sticky European inflation and a hawkish ECB will see the European front-end continue to flatten, in particular 1y1y vs 1y rates.”