The firm previously anticipated the ECB to cut rates in Q4
On the change, analysts at the firm say that:
"Yesterday's speech in Sintra may well be remembered as opening the door for the next round of large-scale stimulus, similar to his Jackson Hole speech in 2014. In essence, the ECB could no longer tolerate the adverse mix of collapsing inflation break-evens and rising real yields since the meeting two weeks ago."
The ECB will next meet on 25 July and there'll still be many more economic data points to be released that could make or break their argument above. Also, more importantly things will also hinge on the proposed Trump-Xi meet up at the G20 summit next week.
At this stage, I reckon July may be too soon though they could very well revise their forward guidance to reflect a more dovish stance. But if economic data deteriorates even quicker than anticipated over the next month, then the central bank may have but little choice to act more steadfast than what majority of market participants are expecting now.
I mean we already saw some improvement in market confidence after Draghi's speech yesterday. The gauge of euro area long-term inflation expectations crept higher by 9 bps to 1.23% now from a record low of 1.13% on Friday.
