Markets are currently pricing an almost 90% chance of a 25-basis point ECB rate hike in June. Such a move is indeed possible, but we would strongly advise against it. The latest batch of PMI data (especially in the critical services sector) suggest a degree of demand destruction that implies slow and limited passthrough of higher energy costs. There is enough of a warning signal here that we believe the ECB should stay its hand until at least the July 23rd meeting, at which point we will likely have had some resolution to the Iran conflict and much more clarity on the sustainability of recent oil price increases.

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