Macro Market Insights

The ECB is expected to hike rates to 2.25% on 11 June, with market focus shifting to guidance for a September follow-up. Despite diverging policy rhetoric between the ECB and BoE, market rate expectations remain largely aligned, creating a risk of future policy divergence.

Key Takeaways

• 1.A rate hike to 2.25% by the ECB on 11 June is viewed as essentially a 'done deal' by markets.
• 2.ECB and BoE policy outlooks have diverged, yet market rate expectations have remained closely correlated, suggesting a potential market decoupling or central bank shift ahead.

Table of Contents

• ECB: Don't 'look through' in anger
• Market priced for ECB rate hike on 11 June
• Core inflation comes in hot
• Energy prices rising ~11% y/y
• September follow-up hike
• No time to pre-commit though
• Case for invoking the Trichet codewords
• Chalk and cheese, ECB and BoE
• Markets don't buy divergence story
• There's doubt about the BoE look-through strategy
• Do market expectations diverge or central banks converge?

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