This post was taken from our December 4th weekly report.

While attention will inevitably be focused on the upcoming ECB monetary policy meeting in December and the expected end to asset purchases, money markets are increasingly pushing back against higher policy rates. We can see that shortage of labour in the eurozone has fallen, which will also take pressure off the ECB (top-left chart). Moreover, the outlook for growth will also make it more difficult for the ECB to tighten. Our leading indicators, which highlighted the slowdown in the eurozone and Germany back in June, show no signs of an economic recovery in the near future (top-right chart).

The bottom-left chart shows a drawdown in the EUR OIS (EONIA) forwards, with the 1Y1Y down 10bps since the recent October peak and the 3Y1Y down 30bps over the same period. In probability terms, the shift in the OIS curve has dragged down the probability of a December 2020 deposit rate hike to 52% from 69% at the beginning of November (last chart).

(Click on image to enlarge.)

Source: Bloomberg, Macrobond and Variant Perception