Market Data Resets Thinking to Higher Peaks Then a Pause — Not Cuts

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Eurozone Market Update

February’s more forceful language from the ECB brought an expected 50 bps hike to 2.5%. Another 50 bps will follow in March. There has been a major market repricing, taking out the wrongly anticipated rate cuts.

Europe had unexpectedly strong February Purchasing Managers Index (PMI), employment and wage data — raising hopes of avoiding a technical recession. But inflation remains far above target.

February’s €36.6 billion in targeted longer-term refinancing operations (TLTRO III) early repayments were at the lower end of the market forecast (€35 billion to €100 billion). These had little impact, but the market believes there could be a very large repayment in March as it represents the last window to repay before the June expiration of TLTRO III. This may see many banks paying back most of their remaining TLTROs.

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