Weak Economy May Prompt European Central Bank to Change Hawkish Stance Sooner

　　According to Simon White, macro strategist of Bloomberg, the monetary growth of Europe (EU) continues to decelerate, which indicates that the hawkish stance of the European Central Bank (ECB) strengthened recently will soften faster than the market currently expects.

　　Earlier released data showed that the year-on-year growth rate of European M3 in May decreased to 1.4% from 1.9% last month. The actual growth rate of M1 continues to decline significantly.

　　M1 is the most direct and active part of the Money supply, which has a greater impact on economic activities. It is mainly composed of Demand deposit, that is, deposits generated when new loans are issued, and deposits prepared for use in the real economy.

　　Although economic "soft data" such as purchasing managers' indices in Europe had previously unexpectedly strengthened, they are now catching up with "hard data" such as currency growth. The weak trend of European economic growth is consistent with the decline in actual M1 growth rate.

　　Strangely, economists do not seem to consider M1 as a leading indicator. However, it has been proven that the actual growth rate of M1 is closely related to economic surprises.

　　Given this, White expects the economic data in Europe to become increasingly disappointing in the coming months.

　　This makes it easy for the hawkish rhetoric recently strengthened by the European Central Bank to soften again as the data deteriorates, and inflation will continue to decline at a considerable rate in the coming months.

　　Like the Federal Reserve, the European Central Bank is using "lip service" to make the interest rate curve develop according to its will, that is, "maintaining higher interest rates for a longer period of time".

　　So far, the interest rate curve of European interbank Interbank lending market shows that traders have always believed that the interest rate curve of December 2023 and December 2024 contracts is becoming steeper.

　　But White believes that the weak economic growth may soon lead people to believe that the time of interest rate cut is earlier than what the European Central Bank currently implies, thus re flattening the curve.