Europe: ECB – defending the old ground
While we don’t think we’re on the cusp of persistently fast Eurozone inflation, the ECB’s price forecasts materially understate the impact of current trends. While that’s fine for now, by the time the ECB’s current asset purchase programme expires, changes to the medium-term inflation outlook will warrant a more hawkish appraisal. Short-rates look too low on that basis. This should also continue to feed into higher long-term rates. We remain short bunds and Italian and Irish 10yr bonds. This will also become positive for the euro at a time when the supremacy of the US dollar is at risk from the uncertainties of Trumpism.