ECB Completes Easing Pivot as Inflation Cools

The Governing Council cut rates and fine‑tuned its balance sheet guidance as disinflation broadened and forward‑looking wage indicators eased. Communication stressed data dependence and a desire to avoid cliff effects in credit while keeping optionality. Interbank rates adjusted lower, and OIS curves flattened as the market internalized a more durable easing stance.

PEPP and APP reinvestment contours were clarified, smoothing supply into year‑end. Banks saw lending standards stabilize, and peripherals tightened versus Bunds on carry appeal. The euro dipped modestly, reflecting relative growth dynamics and the rate differential backdrop. Risk assets welcomed the visibility, with defensives leading on duration sensitivity.

We extended EGB duration, added selective peripherals with strong fiscal anchors, and focused on high‑quality corporates poised to benefit from lower funding costs. We kept EUR hedges on non‑euro assets to manage relative policy paths and preserved flexibility to add curve steepeners if term premia rebuilt alongside issuance and growth rebounds.

Client portfolios emphasized liquidity and laddered maturities, creating room to add on any spread indigestion. We also evaluated financials’ equity and AT1s case‑by‑case, prioritizing capital strength and earnings resilience as the policy mix evolved. Milestones include wage prints, services inflation stickiness, and the pass‑through into loan demand.