That supports the view that the ECB will deliver a 25-basis-point hike in September, fully priced by markets, and then stop, the economists wrote. Markets currently price almost one additional increase after September, but Danske does not expect that. The bank also revised its call on rate cuts: it no longer expects the deposit rate to return to 2.00% in 2027, citing resilient growth in the euro area.
In the US, headline PCE inflation came in at 3.7% year-on-year in July, slightly above the 3.6% consensus, while core PCE matched expectations at 3.3% and 0.2% month-on-month. Revised second-quarter GDP confirmed the initial 1.5% annualized growth rate but raised private consumption, imports and the price deflator, and corporate profits jumped. The stronger details, combined with slightly higher inflation, pushed yields across the curve higher and EUR/USD lower. The Conference Board's consumer confidence index fell to 89.4 in August from 90.8, below the 91.2 consensus, though the data produced no clear market signal.
Germany's Ifo business climate index rose more than expected in August. The current assessment index climbed to 88.5, its highest level since 2024, and the expectations index rose to 89.1, nearly back to its pre-war level. The recovery is led by manufacturing, and the bank expects the rebound to continue, supported by rising survey orders and expansionary fiscal policy.
Next week brings several tier-one releases: the US jobs report, euro area flash inflation and Chinese PMIs. Danske expects nonfarm payrolls to rise by 65,000, slightly above the 55,000 consensus, with unemployment holding at 4.1% and average hourly earnings rising 0.3% month-on-month. A strong report could add pressure on the Federal Reserve to raise rates. Euro area headline HICP inflation is expected to rise to 3.4% year-on-year from 3.0%, again driven by energy, while core inflation is forecast to dip to 2.4% from 2.5% as the lack of energy spillovers persists.
