CONFIDENCE GROWS STRONGER IN EUROPE 3/3

04 Jul

CONFIDENCE GROWS STRONGER IN EUROPE 3/3

Following the latest key rate cut, short-term yields in the Eurozone are near inflation, leaving real yields close to zero. The outlook for further cuts depends on a continued decline in inflation and economic conditions. We expect the downward trend in inflation and the ECB’s accommodative stance to continue pressuring yield curves, particularly at shorter maturities, making a flattening of the curve unlikely.

Key Points

  • Economic conditions continue to improve in Europe
  • Positive momentum continues in 2nd half
  • Leading indicators remain moderately optimistic
  • Household confidence set to improve
  • Inflation falls back below ECB target (+2%)
  • ECB to cut rates below 2%
  • Positive but moderate outlook for eurozone bond markets
  • Euro benefits from renewed confidence
  • Securitized real estate benefits from lower rates
  • Return of uncertainty for equities over the summer months