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🇪🇺Strong activity in services sector

🇪🇺 Chartstorm on euro area bank lending data (March M3, credit and Bank Lending Survey). In short: more tightening than expected and "persistent weakening" of loan dynamics. Likely to cement the case for a step-down to 25bp ECB rate hike(s). 🧵

🇪🇺 Euro area core inflation eased slightly in April, from 5.7% to 5.6%, helped by core goods (-0.4pp to 6.2%), but services inflation rose to a new record high (+0.1pp to 5.2%). No reason to relax, but the peak may be in.

#ECB preview: banking on policy transmission “a forward-looking ECB should move more cautiously from here stepping down to 25bp rate hikes in full data-dependent mode”, Frederik Ducrozet, Head of Macroeconomic Research, and Nadia Gharbi, Senior Economist, at Pictet Wealth Management

🇪🇺 ECB hikes rates by 25bp, to the highest level since 2008. "The inflation outlook continues to be too high for too long", but "the past rate increases are being transmitted forcefully to financing and monetary conditions" albeit with uncertain lags and strength.

.Christine Lagarde: corporate demand for bank loans was "really, really down", suggesting that ECB tightening is working and policy rates are in restrictive territory.

🇨🇭 The SNB is following in the ECB's footsteps with hawkish projections. Inflation is expected to be higher, above 2% throughout 2025, despite today's rate hike. The SNB cites "second-round effects, electricity prices, rents and more persistent inflationary pressure from abroad."

#SNB preview: “Our opinion is that the SNB will raise its main policy rate by 25bp, bringing it up to 2%—although we also think that recent developments mean it will be a close call.”, Nadia Gharbi, Senior Economist, at Pictet Wealth Management

🇪🇺There's monetary policy transmission, and then there's 'fast and furious 450bp tightening and €1.8tn balance sheet reduction' transmission.

All you need to know about the German constitutional Court ruling 👇🏽

🇪🇺 ECB staff sees inflation at 2.1% in 2025 and 1.9% in 2026. Pretty much balanced, nothing to do for now but wait for the right timing to ease... watching the Fed. 😉

Getting away with it without rocking the boat. With a 50% PEPP taper in H2 2024, we're talking about roughly €40bn less in reinvestments. A drop in the QE ocean.

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🇪🇺 Euro area core HICP inflation a bit sticky on the margins, down 1bp to 2.86% in June with services broadly stable at 4.13% and core goods at 0.66%. The ECB will be waiting for more encouraging data in coming months.

🇺🇸 Can't blame anyone for being suspicious when economists come up with explanations such as transmission lags or counterfactuals to explain the lack of tariff inflation. Except that it's exactly what's happening. Quick 🧵