Oil shock and hawkish signals shape hike bets – Nomura

Nomura’s Senior European Economist Andrzej Szczepaniak notes that traders have increased pricing for European Central Bank rate hikes after hawkish comments from ECB members Kazimir, Kazaks. He stresses that next week’s ECB meeting is unlikely to deliver action, with stale staff forecasts and upcoming inflation expectations surveys becoming crucial.

Hawkish ECB rhetoric meets Oil-driven risks

“Bloomberg headline: *TRADERS ADD TO ECB RATE BETS, PRICE 30BPS OF HIKES BY YEAR-END”

“This is in response to the Kazimir comments that a rate hike is maybe closer than thought, and at the same time Kazaks noted the ECB could act if the war raises inflation expectations – i.e., the insurance rate hike scenario we outlined.”

“Kazaks’ comments indicate some in the ECB may want to be extremely proactive in response to the Iran conflict even if the ECB’s Q4 2028 HICP inflation forecasts are unchanged as oil futures shift lower.”

“It is important to note both Kazimir and Kazaks are hawks, and they are saying hawkish things.”

“Nonetheless, any action at next week’s meeting is off the table, and it is worth noting the ECB staff forecasts will be stale (cut off for financial market technical assumptions is 24-25 February, i.e., before the conflict began).”

“Surveys on inflation expectations will therefore become extremely important in the coming months.”

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