Cautious Central Banks Emphasise Data Dependence in June Meetings

Exclusive insight for TMI subscribers! Northern Trust Asset Management share a monthly market commentary for treasurers.

Eurozone Market Update

The ECB concluded its June meeting with a cut of 25 bps across its three key interest rates. It became the second G7 central bank to ease policy this cycle after Canada, which also eased in June. The ECB Governing Council felt that a less restrictive policy stance was warranted by its updated assessment of the inflation outlook, underlying inflation dynamics and the strength of monetary policy transmission. The ECB reiterated their commitment to its data-dependent approach and stressed in its policy guidance that it “is not pre-committing to a particular rate path”. We view the hurdle for a July rate cut as extremely high and see September as the earliest the ECB could cut again. The announcement on 9 June of a snap election in France triggered a surge in the risk premium on French assets, with the spread between 10-year French OATs (government bonds and 10-year bunds rising by 28.6 bps over that week (See Chart of the Month). However, French markets responded positively after the first round of voting in which no party claimed a majority.

_{Source: Bloomberg, data as of 28 June 2024}

UK Market Update

As widely expected, the BoE kept the bank rate at 5.25%, with the voting pattern unchanged. Seven members voted to maintain the current rate, while two voted for a cut of 25 bps. The decision was considered dovish because the meeting minutes noted that it was “fairly balanced” as the BoE downplayed the impact of services inflation surprises with their expected outlook. The minutes emphasised the drop in Consumer Prices Index inflation from 3.2% in March to 2.0% in May and noted that indicators of short-term inflation are expected to moderate. Following the meeting, markets increased the chance of a cut by the August meeting to 62% from 34%. We see a summer cut of 25 bps as the most likely scenario, followed by an additional 25 bps cut in the fourth quarter.

Download our Free Treasury App for mobile and tablet to read articles – no log in required.

Download Version Download Version