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ECB's Lane says the central bank will at every meeting consider what the scenario is before setting policy

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Iranian Parliamentary speaker says Iran is closely monitoring all US movements in the region, especially troop deployments

[MARKET ANALYSIS] Global equities rise on plans of a Middle East ceasefire; ARM surging after the announcement of the sale of its own chips

ECB's Lane says the central bank will at every meeting consider what the scenario is before setting policy

Saudi Arabia has intercepted two drones in the Eastern region

A senior analyst with knowledge of the ongoing ceasefire talks says that discussions between the US and Iran were making quiet but swift progress

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COMMENTARY

  • Says consumer confidence fall was large, can be seen in the downturn within PMI data
  • Inflation expectations show a significant effect for the first year of forecasts, then declines
  • Notes market expects sizable inflation readings in March and April, before reverting to normal levels
  • Market dynamics suggest a price-level jump
  • Wage tracker is a good leading indicator for negotiated wages

SLIDES - FORECASTS

  • ECB's Lane says baseline assumes no explicit duration for conflict or energy infrastructure damage
  • Adverse and severe scenarios see acute energy supply disruptions lifting inflation and weighing on growth
  • Severe scenario assumes further destruction of energy infrastructure and more persistent market volatility
  • Adverse and severe scenarios would lower Euro area real GDP growth from 2026-2028 vs baseline, would push up headline and core inflation

SLIDES - CONSUMERS

  • Says March 2026 consumer confidence shock tied to Middle East conflict is milder than after Russia's 2022 invasion

SLIDES - INFLATION EXPECTATIONS

  • Says market-based inflation expectations have risen since the start of the Iran conflict
  • Says March 2026 energy price projections are nearing the threshold for medium-sized non-linear energy shock effects
  • Survey evidence points to rising input costs and selling prices in early 2026, below 2022 peaks
  • Wage indicators show pay pressures remained elevated into early 2026

Context

ECB's Lane emphasizes that the central bank will assess the economic scenario at each meeting, reflecting a proactive approach amidst significant shifts in consumer confidence and inflation expectations. This suggests a potential adjustment in policy guidance as the ECB navigates rising inflation risks from energy supply disruptions, indicating that markets may need to recalibrate their expectations accordingly.

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