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According to analysts at Danske Bank, markets do not believe in the ECB’s inflation target and a big easing package is needed to restore credibility, though the impact on the economy is likely to be muted.

Key Quotes

“Growth momentum and inflation pressures remained subdued in June. Markets should brace for more negative economic surprises.”

“The Brussels personnel poker ended in a deal that saw two women take over the reins at the ECB and EU Commission. We expect broad policy continuity under new ECB President Christine Lagarde, while Ursula von der Leyen’s appointment as Commission president could still face a rocky road amid opposition in the Parliament.”

“Markets cheered the Commission’s decision not to launch an excessive deficit procedure against Italy at the current stage, but we still see a fair chance that a renewed stand-off looms in the autumn over the 2020 budget.”