ECB Preview: More information needed before acting

We expect a status quo at ECB’s next week meeting, a decision expected by the market to a large extent. Given the latest economic developments since the June meeting and in the absence of clarification of the effective tariffs that will be imposed by the US, we anticipate that a majority of Governing council members will consider that the ECB is 'well positioned ' to assess shocks and cope with an uncertain environment. Several elements support our view. First, the latest hard and soft economic data are still positive, whereas the transmission of past rate cuts is still ongoing. Second, b y the September meeting, the ECB will have a battery of new information including a new set of forecasts , updating the three scenarios already discussed in June meeting. Given the upcoming data by September , we believe that the ECB will have enough information to proceed with a new and final rate cut in next September. Our call is slightly ahead of market expectations in terms of timing, which fully price in a rate cut only by the end of the year. In turn, we attach a probability of 20% to the adverse scenario paving the way to another 25bp policy rate cut at the December meeting should the 30% US tariffs be applied , and the European retaliatory measures be not proportioned.