DAVY VIEW

The European Central Bank (ECB) looks set to follow through with a 25bps hike on Thursday (July 21st) and with a further 50bps still pencilled in for September. However, given the uncertain economic outlook, the ECB is unlikely to signal a more aggressive tightening cycle than currently priced in by markets — 1% by end-2022, 1.25% by mid-2023. Markets could be disappointed by a lack of clarity on the ECB’s new spread fighting tool given there is little consensus on the issue within the governing council, less likely to act now given political developments in Italy.