Goldman Sachs On ECB Pricing Into CPI

Goldman Sachs write “although we think markets can price more ECB easing over 2024 than the ~145bp priced currently (and continue to recommend April-December 2024 ECB OIS flatteners) - the risk that an initially reluctant ECB is forced to deliver larger increments in H2 has arguably diminished after last week’s ECB.”

• “Against that backdrop, markets' ability to price 50bps cuts is more likely to hinge on activity and labour market resilience; we also note that President Lagarde refused to provide guidance on the neutral rate, as a possible clue for the speed of adjustment.”
• “Our economists are expecting a decline in core HICP to 3.2% in January, which we think will be consistent with the path towards our April cut base case, but any substantial downside surprise could see March pricing shift towards easing.”
• “In contrast, an upside surprise - given uncertainties around one-off adjustments to taxes and energy subsidies - may not have much of an effect given only 5bps of cuts are priced for March.”