Intesa Sanpaolo: The European Central Bank accelerated the progress on the path of policy normalization, despite the uncertainty caused by the Russian invasion of Ukraine.
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Weekly Economic Monitor – 11 March 2022
Intesa Sanpaolo – Research Department
Initial assessments of the economic impact of the latter appear very mild, at least in the baseline forecasting scenario, although the balance of risks is clearly tilted to the downside for growth. The ECB is keeping an open escape route, not committing to a given level of net purchases in the third quarter (as we imagined) and specifying that the time interval between the end of purchases and the first rate hike will also depend on the data.
FOMC: Inflation alert . The March 15-16 FOMC meeting will open a new cycle for monetary policy, with a likely 25 bp rate hike and guidance for a relatively rapid removal of monetary stimulus, both through rates and the balance sheet. However, the Fed is running late and will have to act in a dangerous cyclical phase, with the risk of generating an excessive, 1980s-style slowdown.
The week’s market movers
Only few macroeconomic data releases are lined up this week in the euro area . In Germany, the March ZEW survey should report a sharp deterioration in analyst sentiment as a result of the outbreak of war in Ukraine. For the euro area we see a stagnant industrial production in January (national data showed an increase in Germany and France but a large decrease in Italy). Final February inflation estimates will also be released in France, Italy, and for the Eurozone as a whole.
A host of data releases are lined up in the United States this week, but focus will be on the FOMC meeting, expected to mark the beginning of a new interest rate hike cycle, with an initial 25bps move and the indication of additional, consecutive increase at each of the next meetings, to counter inflationary pressures further amplified by the war in Ukraine. The first round of March survey data on the manufacturing sector should confirm positive growth in the sector, also reporting mounting pressures on prices and wages. February activity data will include retail sales, expected to keep growing at a fast pace despite a contraction in the automotive sector, sue to supply-side bottlenecks, and industrial output, forecast stronger. In the residential housing sector, February data on home sales and housing starts should prove to be moderately positive. Lastly, the February PPI should record another sharp increase, driven by commodity prices, although other items will also push the index up.
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