Today’s announcement of the results of the ECB Governing Council has attracted more attention than usual. Deep-rooted inflation is observed in Europe, and measures to curb inflation are urgently needed. The hawkish members’ calls for a 75 basis point hike were quelled by Lagarde’s message of a series of 50 basis point hikes.
However, the financial situation has changed in an extremely short period of time. Following the bankruptcy of the U.S. bank, financial instability has surfaced at Credit Suisse, a major European financial institution. The fact that the largest shareholder has denied additional support further deepens the seriousness of the situation. Although the Swiss National Bank announced that it will provide funds. Credit Suisse shares have had little resilience. It is a situation that spreads financial instability in the market.
As a source of financial instability originating in Europe, the ECB can no longer stay on the opposite side of the fire. Market expectations for a 50bp to 25bp rate hike are prevalent. Potential for interest rates: Leave or continue to raise rates. 25bp or 50bp for a rate hike? Three cases are assumed. Any measure will inevitably attract criticism, and it is extremely difficult to make decisions when the market is in a state of flux. There is also a view that QT will be temporarily suspended or that the pace will be reduced. It will be necessary to be able to explain in statements and press conferences with Governor Lagarde.
We expect the ECB to be volatile today. I can’t say which way it will move yet, but pay attention to price movements.
