State Street Market Commentary on European Central Bank Interest Rate Decision

In reaction to the European Central bank (ECB) meeting today, Timothy Graf, head of macro strategy at State Street Global Markets, and Antoine Lesné, EMEA head of ETF strategy at SPDR ETFs, part of State Street Global Advisors, offer their views.

Graf commented, “The recent improved Eurozone data is hard to ignore. It seems the ECB is finally (and more forcefully) acknowledging the success of their past efforts in easing policy. European political uncertainty and still-low core inflation will continue to argue for policymaker caution for several more months, but improving labour markets and better growth dynamics across the currency union should at least allow for more positive policy discourse. We still do not see a significant alteration to policy in the next few meetings while core inflation is still so low, but the second half of the year might become more interesting if recent trends in data are sustained.”

Lesné commented, “Improving economic and sentiment data are expected to continue on the upside. The ECB recognises these positive developments and as expected, argued for needed caution before all the obstacles in the European agenda have been removed. Consequently we do not expect any major change from the ECB in the upcoming meetings either. Inflation will clearly be an area of focus as the ECB has been willing to see through the recent peaks. Will improvement in core inflation eventually come from better growth and lower unemployment? This is a surprise for H2 that would suggest a real gradual tapering may be coming. In the meantime we expect the markets to focus on next week’s election in the Netherlands and the FOMC meeting for a potential hike.”