Today's appearance by European Central Bank (ECB) President Christine Lagarde at the Jackson Hole symposium could be more challenging than that of her U.S. counterpart. While the latest PMIs signal a softening eurozone economy, making hawkish remarks a tough sell, there's still a lingering issue of service inflation that the ECB might want to tackle before the opportunity window closes.

Key Points:

1. Gloomy Economic Outlook:

   Recent PMI data from the eurozone suggest a period of sluggish growth is on the horizon. This backdrop makes any hawkish narrative difficult for Lagarde to present convincingly.

2. Closing Window for Rate Hike:

   There may be a fleeting opportunity for the ECB to enact one last rate hike to combat service inflation, a move that could be off the table soon given the deteriorating economic landscape.

3. Mixed Signals from ECB Members:

   While ultra-hawkish ECB member Joachim Nagel believes it's too early to consider pausing, a slightly more moderate member, Boris Vujcic, also supports the bank's data-dependent approach.

4. Lagarde's Predicament:

   Our perception is that Lagarde is likely discontented with the market's recent downward adjustment of rate expectations for the eurozone—only a 40% chance of a September hike is priced in. She may choose to continue prioritizing data over deteriorating growth indicators.

Conclusion:

In a landscape where hawkishness is a hard sell, Lagarde has her work cut out for her. However, should inflation surprise on the upside, the possibility of a September rate hike could become much more likely. Even if Lagarde cannot fully embrace a hawkish narrative today, a data-dependent approach could offer some temporary relief to the Euro.