ING’s Michiel Tukker and Benjamin Schroeder argue that reduced Oil sensitivity in rates and lingering uncertainty should prevent a strong dovish turn from the ECB. They expect the narrative of at least one more hike to be retained for risk management, with Christine Lagarde highlighting Middle East risks and the need to assess shocks before committing to policy changes.

Uncertainty keeps tightening narrative alive

"At the same time, we have to acknowledge that the sensitivity of rates to oil will likely be more muted going forward."

"However, we don’t expect a strong dovish turn from central banks either."

"Some ECB officials, such as Mārtiņš Kazāks, may voice more openly that there is now more room for a wait-and-see stance, effectively diminishing the odds of a hike in July."

"But we don't think that the narrative of at least one more hike will be abandoned, if only to keep it for risk management purposes."

"Seen through this lens and amid still-high uncertainty, keeping a somewhat hawkish bias makes sense."

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