Markets could be about to get a big clue on when the European Central Bank will cut rates
FRANKFURT — The European Central Bank will meet again this week amid falling inflation, a slight recovery in economic activity and the overall understanding that its next interest rate move will be downward.
The only question really for markets is, when will that happen?
Some months ago, the markets were convinced that the March meeting will be "the one." But that's clearly no longer the case. So what is likely now?
"Unlike in previous meetings, the question of the timing of a rate cut will now be on the agenda," said Natixis ECB watcher Dirk Schumacher in a research note.
"The updated staff projections are likely to show a downward revision of inflation for this year, reinforcing the signal that the ECB is moving closer to a rate cut."
The recent consumer price readings showed a slowdown of headline inflation to 2.6% in February, but service prices still rose by 3.9% for the month.
On top of that comes other continuing price pressures, such as the ongoing strike action in Germany, which is a clear sign that wages are probably still on the rise.
"The upside core surprise was in services, which the ECB will interpret as more domestic and therefore more cautionary for monetary policy," said Mark Wall of Deutsche Bank in a research note.
"There is no reason to think that the short-term pace of underlying inflation has eased. If anything, it might be a little stronger."
With the economy in the euro area on aggregate being more resilient than first thought back toward the end of last year, there is less pressure for the ECB to quickly cut rates. Recent PMIs (purchasing managers' index) have even shown an improvement of economic sentiment with the services component even back above 50, which signals an expansion for that sector — not a