Synopsis:

Morgan Stanley anticipates that the ECB will keep rates on hold in July, needing more data to confirm the projected return of inflation to target. The focus will be on upcoming inflation, wage, and productivity data available by the September meeting.

Key Points:

• Rate Decision: The ECB is expected to keep rates on hold in July, as more data is needed to confirm the return of inflation to target.
• Data Dependency: Confirmation of inflation trends requires alignment of actual inflation prints with short-term forecasts and overall macroeconomic data with the disinflation narrative.
• Upcoming Data: The ECB will focus on July and August inflation data, as well as wage and productivity data, which will be available for the September meeting.
• Progress on Inflation: The ECB will likely signal continued progress towards the 2% inflation target.
• French Elections: No specific messaging on the French elections is expected.
• Macro Outlook: Incoming data since June has not significantly changed the ECB's assessment of the macroeconomic outlook.
• Market Impact: The meeting is expected to reiterate data dependency and is not anticipated to be a market-moving event.

Conclusion:

Morgan Stanley expects the ECB to maintain rates in July, awaiting further data to confirm inflation trends. The ECB will focus on upcoming inflation and economic data, aiming for continued progress towards the inflation target. The meeting is unlikely to have a significant market impact.