Commerzbank’s Erik Liem expects the European Central Bank (ECB) to deliver a fully priced 25bp hike, leaving markets focused on guidance for the path of rates beyond summer. He notes that forwards already discount more than two further hikes this year, which he deems ambitious given the current backdrop, and argues that more explicit comments from President Lagarde would be required to generate a hawkish surprise.

Markets eye post‑summer rate guidance

"The ECB takes centre-stage today. A 25bp rate hike seems a done deal and the focus is on the future rate path. As forwards look stretched already, the bar for a hawkish surprise is high."

"Before we can celebrate the start of the World Cup in the evening, with Mexico facing South Africa, markets first have to face the ECB decision and press conference. A hike by 25bp is a done deal and fully discounted by forwards."

"Thus, the focus will mainly be on the guidance beyond summer. As Lagarde will likely stick to the meeting-by-meeting approach, the fresh projections and potential updates to the different scenarios should be key."

"Back in March, the projections and scenarios assumed 40bp in hikes until year-end. Against this backdrop, the March adverse scenario looks rather fair at the moment and we consider the current pricing of more than two hikes this year to be rather ambitious even after accounting for the latest developments in Iran."

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