DAVY VIEW

Markets are fully pricing in a 25bp hike in the ECB’s deposit rate tomorrow (May 4th) but may not sufficiently appreciate the risk of an aggressive 50bp hike. Recent GDP data, PMI surveys and yesterday’s flash HICP release showing core inflation still at 5.6% will only bolster the many ECB Governing Council members who have argued for a robust approach. Yesterday’s Bank Lending Survey showed credit conditions tightening but also pointed to limited fallout from the problems in US/Swiss banking systems.