The European Central Bank is set to lift its -0.50% deposit rate by 25bps in July and by another 25bps in September to zero percent, thus ending its longstanding policy of negative interest rates.
Source: Bank of Singapore, Bloomberg.
Faced with 7.5% inflation as the first chart shows, President Lagarde said the ECB would end quantitative easing and ‘allow us a rate lift-off at our meeting in July … we are likely to be in a position to exit negative interest rates by the end of the third quarter.’ After reaching zero in 3Q22, we think the ECB will keep hiking each quarter by 25bps until its deposit rate hits 1.00% in 2023.
The EUR has gained on Lagarde’s remarks, rising to 1.07 against the USD after earlier in May hitting five-year lows of 1.0350 as the next chart shows.
Source: Bank of Singapore, Bloomberg.
But the Eurozone remains at risk of a sharp slowdown from the war in Ukraine. The last chart shows May’s purchasing manager indices (PMIs). Eurozone activity is moderating owing to high energy prices, supply chain disruptions and weaker global demand. May’s composite PMI fell from 55.8 to 54.9. Moreover, sharply higher energy prices in the UK caused its composite PMI to plunge from 58.2 to 51.8 in May, showing how Eurozone sentiment is also likely to weaken sharply over the next few months.
Source: Bank of Singapore, Bloomberg.
Thus, we remain cautious on the Eurozone’s outlook in 2022 despite the ECB preparing to raise interest rates from July. This year’s slide in the EUR against the USD may still resume, pushing the single currency closer to parity again.
Important information
This product may only be offered: (i) in Hong Kong, to qualified Private Banking Customers and Professional Investors (as defined under the Securities and Futures Ordinance); and (ii) in Singapore, to Accredited Investors (as defined under the Securities and Futures Act) and (iii) in the Dubai International Financial Center to Professional Clients (as defined under the Dubai Financial Services Authority rules) only. No other person should act on the contents of this document.This product may involve derivatives. Do NOT invest in it unless you fully understand and are willing to assume the risks associated with it. If you have any doubt, you should seek independent professional financial, tax and/or legal advice as you deem necessary.
Please carefully read and make sure that you understand all Risk Disclosures, Selling Restrictions, and Disclaimers. This document must be read together with the relevant Prospectus & Offering Documents &/or Key Fact Statement.
Disclaimer
This document is prepared by Bank of Singapore Limited (Co Reg. No.: 197700866R) (the “Bank”), is for information purposes only, and is not, by itself, intended for anyone other than the recipient. It may contain information proprietary to the Bank which may not be reproduced or redistributed in whole or in part without the Bank’s prior consent. It is not an offer or a solicitation to deal in any of the investment products referred to herein or to enter into any legal relations, nor an advice or by itself a recommendation with respect to such investment products. It does not have regard to the specific investment objectives, investment experience, financial situation and the particular needs of any recipient or customer. Customers should exercise caution in relation to any potential investment. Customers should independently evaluate each investment product and consider the suitability of such investment product, taking into account customer’s own specific investment objectives, investment experience, financial situation and/or particular needs. Customers will need to decide on their own as to whether or not the contents of this document are suitable for them. If a customer is in doubt about the contents of this document and/or the suitability of any investment products mentioned in this document for the customer, the customer should obtain independent financial, legal and/or tax advice from its professional advisers as necessary, before proceeding to make any investments.
The Bank, its Affiliates and their respective employees are not in the business of providing, and do not provide, tax, accounting or legal advice to any clients. The material contained herein is prepared for informational purposes and is not intended or written to be used, and cannot be used or relied upon for tax, accounting or legal advice. Any such client is responsible for consulting his/her own independent advisor as to the tax, accounting and legal consequences associated with his/her investments/transactions based on the client’s particular circumstances.
This document and other related documents have not been reviewed by, registered or lodged as a prospectus, information memorandum or profile statement with the Monetary Authority of Singapore nor any regulator in Hong Kong or elsewhere.
This document may not be published, circulated, reproduced or distributed in whole or in part to any other person without the Bank’s prior written consent. This document is not intended for distribution to, publication or use by any person in any jurisdiction outside Singapore, Hong Kong, or such other jurisdiction as the Bank may determine in its absolute discretion, where such distribution, publication or use would be contrary to applicable law or would subject the Bank and its related corporations, connected persons, associated persons and/or affiliates (collectively, “Affiliates”) to any registration, licensing or other requirements within such jurisdiction.
