ECB to Hike Rates as Bond Markets Split on Terminal Rate — SkimNews
Get the Finance newsletter
Daily finance — markets, central banks, M&A, the prints that move money. Free.
- European Central Bank is priced at 99.7% probability to raise rates 25 basis points to 2.5% at Thursday's policy meeting, with the move effectively preannounced at the bank's June statement.
- ING economists Francesco Pesole, Michiel Tukker, and Carsten Brzeski expect Lagarde to push back against bond-market consensus of three more quarter-point hikes by June 2027, pointing to eurozone core CPI of just 2.4% year-over-year in August.
- ING team argues Lagarde cares intensely about bond-market stability given fiscal concerns in France and rising yields, and that hawkish messaging would shift policy from 'insurance' to 'restrictive' without supporting data.
- Deutsche Bank chief economist Mark Wall and Michael Kirker forecast 25bp tightening this month and another 25bp in December, taking their terminal rate call to 2.75%.
- Deutsche Bank client survey found 42% expect a more dovish tone than bond markets are discounting, with respondents split roughly evenly among terminal rates of 2.5%, 2.75%, and 3%.
- Easing timeline is sharply contested in Deutsche Bank's poll: some respondents see cuts as early as Q2 2027, while a quarter don't expect easing until 2028, with resolution of the Strait of Hormuz disruption seen as crucial to oil supply normalization.
- Christine Lagarde's autobiography, titled 'Lady First,' is set to be published in January; her term as ECB president expires next October.
Why it matters: The split between bond markets (pricing three more hikes through June 2027) and analysts/clients expecting a more dovish tone puts Lagarde's every word under a microscope — a hawkish signal could destabilize already-fragile European bond markets with France's fiscal concerns and unresolved Strait of Hormuz oil supply disruptions hanging over the inflation outlook.
Ask SkimNews
