The European Central Bank (ECB) is charting a course of strategic patience, signalling a readiness for a gradual policy shift that could commence as early as June. Analysts uniformly anticipate that while the near term may see steady policy rates, a carefully orchestrated move towards easing is on the cards.
As the ECB prepares for its forthcoming rate decision on Thursday, leading financial analysts have shared their insights, painting a picture of what asset owners can expect in the coming months.
Frederik Ducrozet from Pictet Wealth Management suggests a “dovish hold” this week, paving the way for a rate cut in June. This stance is underpinned by the ECB Governing Council’s growing confidence that inflation will return to its 2% target, essential for kicking off the easing cycle. Ducrozet points to March’s inflation data and the awaited moderation in wage growth as key indicators guiding the ECB’s cautious yet dovish outlook.
“We expect the ECB to remain on hold this week while adopting a dovish tone, setting the stage for the start of the easing cycle in June (barring any upside surprises on wages), potentially fueling expectations of successive cuts to follow,” Ducrozet said in a note to investors.
April meeting could be one of the quickest
Kevin Thozet of Carmignac views the April meeting as potentially one of the ECB’s quickest, given President Lagarde’s clear guidance on future cuts. With recent inflation numbers falling in line with ECB projections, Thozet anticipates this week’s discussion to bolster the case for a June rate cut, assuming no surprises in forthcoming economic data.
“Given the increasing evidence that a manufacturing rebound is at play, there is limited likelihood of downside risk materialising, so the ECB’s message should be ‘keep going, there’s nothing to see here’,” Thozet said. “Our scenario for the ECB this year is a cut in June, with a possible ‘skip’ in July.”
Konstantin Veit at Pimco expects the ECB to maintain its data-dependent approach, keeping policy rates unchanged while expressing confidence in the inflation trajectory. This cautious optimism supports Veit’s expectation for a June rate cut, with subsequent decisions to follow in measured steps, reflecting a prudent and flexible response to economic indicators.
The investment team at Amundi, Europe’s biggest asset manager, highlights the broader implications for the fixed income and corporate credit markets. With inflation as the main driver of policy actions, its strategy leans towards a preference for quality and shorter maturities in the European investment-grade sector, anticipating that lower policy rates will signal reflation and a steepening yield curve.
Amundi likes lower maturity credit
“Our focus is on quality, and we find lower maturity credit selectively attractive. In Europe, we favour Investment Grade over High Yield, and maintain a preference for higher quality (BB) or short maturities,” Amundi said in a note to investors. “Looking ahead, we cannot ignore the risks of idiosyncratic credit events, particularly in lower-rated segments. Hence, we are cautious and disciplined on highly-indebted companies that face excessive interest costs.”