📝Current Implied ECB Easing Cycle Looks Cautious: Nordea

The cumulative fall in ECB rates in the upcoming cutting cycle as implied by current market pricing is only around 160bp, which is less than in any of the real rate-cutting cycles since the 1960s (excluding the cycle which started with the reversal of untimely hikes during the Euro-area debt crisis in 2011 and followed by tinkering with negative rates).

In fact, the average fall in the Bundesbank rate-cutting cycles has been around 350bp. Further, rates have tended to fall more than average in the cycles, where they have been raised by more than average over the preceding rate hiking cycle. In this cycle, the trough-to-peak rise in rates was 450bp, clearly above the average of around 320bp. While every cycle is different, history strongly suggests that there are downside risks to the current pricing of ECB rate cuts in the coming years. We agree. - Nordea