Euro: ECB minutes signal limited need for further tightening - Danske Bank

Danske Bank strategist view the September European Central Bank (ECB) minutes as dovish relative to market pricing, arguing that they do not support the three additional rate hikes currently priced in. They note that limited second-round effects from the energy shock and higher long-term yields could reduce the need for further ECB tightening. Meanwhile, US labour market data continues to signal resilience, while Fed officials remain flexible on the timing of additional rate hikes.

ECB minutes seen dovish versus pricing

"In the euro area, the September ECB minutes offered little forward guidance, but we view them as dovish relative to market pricing. The policy discussion appeared broadly neutral and, in our view does not support the three additional hikes priced in."

"Members noted no signs of second-round effects from the energy shock and only limited indirect effects, while stressing that higher long-term rates could materially weigh on growth and inflation. As a result, the sharp rise in longer-term yields should limit the need for further ECB tightening."

"In the US, continued claims increased more than expected to 1.716m in the week ending 26 September, up from 1.699m previously. However, the increase does not change the broader picture, as continued claims remain low compared with recent years. Initial jobless claims fell slightly, against expectations of a small increase, although the previous week was revised higher. Overall, the data still points to a relatively tight labour market."

"On the wires in the US, Fed's Waller said further rate hikes are needed but stressed flexibility on the pace, adding that hikes do not need to come at consecutive meetings. While this is somewhat more explicit on the need for additional tightening than comments from Jefferson and Williams last week, it remains consistent with the message that there is no urgency to hike again at the October meeting."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)