Eurozone Inflation And ECB Hawkishness

Eurozone inflation reached 3.2% in May, prompting a likely ECB rate hike in June, but deteriorating growth outlooks and energy shocks will probably limit sustained aggressive tightening. UBS favors quality fixed income, Eurozone cyclicals tied to secular trends like AI, and strategic gold holdings.

Key Takeaways

• 1.While the ECB is expected to hike rates due to a spike in May inflation (3.2%), significant monetary tightening is unlikely due to Eurozone growth risks and energy-driven shocks.
• 2.Eurozone equities remain attractive, supported by a 25% earnings growth forecast over two years, driven by AI investment, electrification, and disciplined cost control.
• 3.Gold has overtaken US Treasuries in official global reserve holdings (27% share), though this is partially attributed to valuation effects from higher prices.

Table of Contents

• Thought of the day
• What to watch: 3 June
• Caught our attention
• Market update
• Global asset class preferences definitions
• Appendix