Research

Menu

Back

Choose Language

June 30, 2022

News

Sintra Summary

This week, the ECB held its annual central banking forum in Sintra, Portugal. The overarching theme this year was “challenges for monetary policy in a rapidly changing world”. Investors watched the event closely, hoping for further clues about the path of monetary policy, but with markets pricing in 150bp of ECB tightening by year-end, the bar for a hawkish surprise was set quite high.

The key takeaways from the event were as follows:

  • ECB Chair Christine Lagarde said that inflation in the eurozone is "undesirably high" while price pressures are “broadening and intensifying”. Currently Eurozone inflation is at an all-time high of 8.1% and wage growth is expected to double to 4% by year-end.

  • Lagarde pledged to contain price rises by going "as far as necessary" to bring inflation back down to the 2% target and added that the ECB will normalise policy gradually, but with the asterisk that it will "act decisively" should the outlook for price growth deteriorate in the medium-term.

  • Prior to the meeting, the ECB had already laid out quite a clear roadmap with regard to its tightening campaign signaling a 25bp hike for July, the first increase since 2011, before a bigger move in September unless there is a rapid improvement in the inflation outlook.

  • As tightening ensues, Lagarde pledged to prevent unwarranted bond market fragmentation (contrary to her 2020 comment that the central bank was “not here to close spreads”) by using flexibility in the way the ECB reinvests the proceeds of bonds that mature in the €1.7tn PEPP portfolio.

  • While the ECB has revised down its growth forecasts for the next two years, Lagarde played down recession fears citing domestic buffers.

  • Federal Reserve Chair Powell commented that the US economy is well positioned to handle tighter policy, though orchestrating a soft landing will be quite a challenge. He believes markets are largely aligned with the Fed’s intentions.

Discussions beyond near-term policy included central bank digital currencies, the globalisation and robotization of the services sector, energy price volatility and energy sources in Europe, real estate boom and bust cycles, global value chains and supply bottlenecks.


More

August 2, 2023

News

BILBoard August 2023 – Challenging re...

The idea that central banks might be finished hiking rates is gaining prominence. In the US, the Federal Reserve has now hiked rates eleven times,...

July 31, 2023

News

The dangers of passive investing in c...

Over the past decade, there has been a pronounced shift away from actively managed funds to passive strategies. While we do believe that both types...

July 24, 2023

News

What’s weighing down the German econo...

Germany, the fourth largest economy in the world and the leading economic power in the European Union, began 2023 in recession. Given pale full-year growth...

June 10, 2023

News

BIL Midyear Outlook 2023

The Landing Process Introduction from our Group Chief Investment Officer, Lionel De Broux     Our 2023 Investment Outlook, published back in December, was entitled...

June 8, 2023

News

Sell in May and Go Away?

As summer approaches, some market participants might have recently contemplated the old investing adage “sell in May and go away.” This is the notion that...

All articles