Tomorrow has a trove of data that could change some of the outlook for what the ECB might do at its next meeting. In anticipation of the figures for the whole of the Eurozone to be released next week, both France and Germany provide advance March CPI and Q1 GDP figures. Immediately following that, the ECB will hold its policy meeting, and there’s rampant speculation about what could happen there.
First, the data
France will start what could be a pretty rocky day for the Euro as key data comes out over the course of a couple of hours around the market open. Typically, the first to report sets the tone of the day, because figures tend to be in line. But, if there is any major difference between the data points, it could provide a reversal for the Euro pairs.
Preliminary Q1 GDP for France is forecast to show quarterly growth of 0.1%, which would be the same as the prior. That implies an annual growth rate of just 0.3%, down from 0.5% at the end of last year. France has been experiencing a series of strikes that have hampered production, despite lower energy prices that might have helped businesses overcome supply issues.
CPIs vs GDPs
Over the course of the next few hours, each German state will report its monthly CPI data. The market might react as the data helps paint a picture of what the inflation situation is in the largest economy of the Eurozone. But, France will anticipate that by reporting its annual CPI change just before the market is set to open. French CPI is expected to remain “sticky” at 5.6% compared to 5.7% prior.
Germany will then report its Q1 GDP figures, expected to come back into growth at 0.1% compared to -0.4% prior. This will help the country narrowly avoid a technical recession, which would be declared if the figure misses expectations enough to fall into the negative. The annual growth rate is expected to decelerate precipitously to 0.2% compared to 0.9% recorded last quarter due to base effects, where Q1 of last year saw the economy reopening after the Omicron variant faded.
Finally, Germany will report its consolidated inflation number, which is expected to remain “sticky” just like France’s, but at a higher rate. German preliminary March CPI change is expected to come in at 7.3% compared to 7.4% prior.
Potential ECB action
Recent reporting says that the ECB is coming to something of a consensus of raising rates by 25bps at the next meeting, but not taking double that off the table. However, officials caution that the larger rate hike would need a substantially higher inflation rate to justify, given the fallout from the banking situation.
General worries about the health of banks have pushed up the cost of borrowing, which has the practical effect similar to a rate hike. But recent earnings reports from major banks, such as BBVA and Deutsche Bank earlier today have shown the European banking sector is quite solid. That could help investors retain confidence in the banks, lowering borrowing costs – which in turn might make it more likely the ECB will raise rates after the next meeting.
