Equity markets remain choppy with a lack of clear momentum. Next week's start of the earnings season should at least give us some trend. Financial stocks to open earnings season as per usual. The first earnings season under the super-sized inflation conditions gets underway next week and will demonstrate just how well or poorly companies are able to deal with inflation. History shows us that for the most part, equities are actually a pretty good hedge against inflation, as companies push up prices in response to rising input costs. The early stage of an inflationary cycle is where equities tend to do best. After time, consumer sentiment sours, demand falls as prices rise, and so company revenues and margins suffer. But currently, we are at the early stage of this inflationary cycle, so we expect earnings to hold up. Next week kicks off with financials, who would usually benefit from rising yields anyway as this increases their net interest margin. The energy sector also should report huge numbers on the back of surging energy prices. So for now, we remain in the moderately bullish camp, albeit with some serious buffeting along the way. Headwinds to buffet, include some familiar themes from last year, supply chains, and semiconductor issues and now include energy costs also.  Unemployment is now below the long-term trend for the US and indicates that the US economy has now peaked. Again taking to the history books, once inflation tracks below the long-run average, a recession is usually about 12 to 18 months away. Again this is looking more likely and indeed Deutsche Bank nudged its forecasts of the US economy to recession before 2023 is out. The oft-cited yield curve inversion also usually indicates a recession within a year. This would be consistent with the Fed raising rates at probably one of the fastest paces in living memory and inflation running riot. Inflation is usually not contained by Fed policy but by recessions. Markets are forward-looking by nature and the macro investors are certainly worried. But for now, corporate earnings and corporate buybacks at record levels should just about be enough to avoid a bear market in 2022. 2023 however is a different case. Sector performance Defensive and value-orientated names led the way as investors increasingly took a cautious tone. Consumer staples (XLP) was the strongest sector of the week closely followed by healthcare (XLV) and utilities (XLU).  Tech was the biggest loser (XLK) dropping 3% on the week. Momentum names (MTUM) once again lagged value stocks (VLUE) as wannabe Buffets continued to catch up and indeed surpass pandemic era gains from momentum. Sentiment readings and financial conditions The latest readings show financial conditions tightening somewhat. No surprise given the hawkish commentary from Fed officials and rising yields. The usual and oft-cited measures of sentiment have turned more bearish in the past week. The CNN fear and greed index has moved moderately but the AAII (American Association of Individual Investors) has shown a strong rise in bearish sentiment. This is despite a reasonable week for equity performance. Yes, the main indices will close lower on the week but moves were far from dramatic. But we did notice a strong move in the MOVE index, excuse the pun. This is the bond market volatility index, akin to VIX. Bond markets are nervous over how the US economy is going to react to markedly higher rates. The hawkish minutes and commentary from Brainard and Daly during the week only added to already stressed bond markets. Yields again were marked higher. Source: AAII.com Source: CNN.com The various financial condition indices show financial conditions tightening across the country. The Goldman Sachs and Chicago Fed financial conditions indices both rose to the highest levels since 2010. S&P 500 (SPY) price prediction The S&P 500 (SPY) has retraced to the value area at $448 and is now choppy around this level with a serious lack of direction. The fact though that the double top at $458 was broken indicated that the market may be ready to progress. Earnings season could and should be this stimulus in our view.  Nasdaq (QQQ) price prediction Choppy range trading is also the order of the day here but the index is technically weaker than the SPY above. The last rally failed to break $370 and QQQ remains in a choppy directionless range. This is unlikely to be resolved before big tech earnings in a few weeks. The underperformance versus the SPY is likely to continue early into the earnings season with financials and energy earnings likely to continue the outperformance for the SPY. Ultimately we expect earnings season to see $370 finally broken but again volatility will be a feature. This will be a harder trend to establish that in 2021. The Nasdaq is often cited as the yield-sensitive...

As the Federal Reserve ramps up its rhetoric on rate hikes, precious metals markets continue to consolidate. Metals markets haven’t been helped by a rising U.S. Dollar Index. Yes, despite the Federal Reserve note losing purchasing power at the most rapid pace in four decades, it is gaining against most major foreign currencies. A big part of this superficial dollar strength is based on expectations that the Federal Reserve will raise interest rates more aggressively than central banks in Europe and elsewhere.  On Wednesday, the Fed released the minutes from its most recent policy meeting. Officials indicated they wanted to shrink the central bank’s massive bond purchasing program at a faster pace than previously indicated. Some also pushed for larger 50 basis point rate hikes in response to alarming inflation data.   The financial media widely reported the Fed’s monetary policy stance as being “hawkish.” But policy itself remains extremely accommodative.  And the Fed will face immense pressure to continue accommodating the borrowing spending binges on Wall Street and in Washington. There are very few deficit hawks these days on Capitol Hill.  Both establishment Republicans and Democrats regularly vote for budgets that grow government spending beyond the ability of revenues to cover. They haven’t felt any need to change their ways because they have a seemingly unlimited capacity to borrow at artificially low interest rates thanks to the Fed.  But with rates now rising, the costs of government deficit spending are growing. President Joe Biden is undeterred. Last week, he pushed a massive $5.8 trillion budget proposal. He claims that it won’t increase the deficit or contribute to inflation because he will be raising taxes to pay for it. Joe Biden wants to impose a "Billionaire Minimum Income Tax," raise the top tax rates on individual and corporate income, raise the top rate on capital gains and dividends, and exact taxes on investors’ unrealized capital gains after they die. Not even all these new taxes would be enough to pay for the Biden administration’s big spending wish list. Even under the White House’s own fiscal assumptions, the government would still run deficits in excess of $1 trillion.  Trillions of dollars that can’t be extracted from the economy will have to be borrowed into existence out of thin air. That is the root of the inflation problem, as Reason’s Nick Gillespie noted in a recent video: Joe Biden: My dad had an expression. He said, "Don't tell me what you value. Show me your budget, and I'll tell you what's your value." Nick Gillespie: So, President Joe Biden has released his budget plan for fiscal 2023. At the very moment, we're experiencing the highest inflation rates in 40 years, and it turns out he values the same sort of government spending that is already sending prices sky high. It's debt-financed spending that spurs inflation in the first place. Rather than cutting spending and reforming entitlements, the government borrows and prints money so it can keep giving goodies to its favorite citizens. You get more dollars chasing the same amount of goods, and that leads to price hikes. Fed chairman, Jerome Powell, has announced a series of interest rate hikes to help tame inflation. But in a recent speech, he made no mention of the increase in the money supply measured by M2, which has risen by a record 41% in two years, or of the Federal Reserve's holding of U.S. debt, which has jumped $3.5 trillion over the same time period. The Fed finds itself in a tough spot. It may have some room left to maneuver on rate hikes. But it likely won’t ever be able to staunch currency supply growth – the raw material of price inflation and the fuel for government deficit spending. The dirty little secret in Washington is that inflation functions as a tax. It transfers purchasing power away from wage earners and savers.  At the same time, inflation erodes the real value of debts that have to be paid. And the U.S. government is the biggest debtor of them all with $30 trillion owed officially and tens of trillions more in unfunded liabilities. The inflation tax is taking a huge bite out of household budgets. The average American family will have to pay $5,000 more this year just to maintain the same lifestyle they enjoyed last year.  Inflation is also eating away at investors’ real returns on financial assets. Bonds and money markets have been yielding negative real returns for years. Now equity market investors are struggling as well to keep pace with inflation. Many potential alternatives exist for generating inflation-beating returns – from real estate to cryptocurrencies to collectibles. But the most essential asset class to own for inflation protection is physical precious metals. Gold and silver represent sound money. And sound money, by...

Summary In our view, the Reserve Bank of India's (RBI) April meeting signaled in a stark shift in the central bank's stance on monetary policy. Policymaker actions and commentary, along with the official statement and forecast revisions, indicate to us the time has arrived for the RBI to initiate its tightening cycle. The April meeting reinforced our view that RBI policymakers will lift interest rates starting in June; however, tighter monetary policy is likely not enough to prevent rupee weakness and we continue to forecast modest rupee depreciation through the end of 2022. Download the full report  

Daily market outlook on major Update Time: 08 Apr 2022 09:30GMT. USD/JPY - 124.06 Dollar's rally from last Thur's bottom at 121.29 to as high as 124.23 in Australia today on continued USD's strength due to rally in U.S. yields suggests early correction from Mar's near 7-year peak at 125.10 has possibly ended and as 123.68 (Asia) has contained subsequent retreat, consolidation with upside bias remains for 124.30/40 but 124.70 should hold. On the downside, only a daily close below 123.47 would signal a temporary top is in place and risk stronger retracement towards 123.03. Data to be released on Friday Japan current account, trade balance, consumer confidence, Eco watchers current, Eco watchers outlook. Italy retail sales. Canada unemployment rate, employment change, U.S. wholesale sales and wholesale inventories.

Summary The U.S. consumer faces a wave of challenges in 2022. Persistent inflation combined with a less supportive policy environment will take much of the wind out of the sails for consumer spending this year. But, it's not all doom and gloom for the consumer. Job growth remains strong and household balance sheets are in relatively good shape. An underappreciated near-term tailwind for the consumer, in our view, is robust federal tax refunds. The average tax refund is up more than 12% compared to last year and is about 13% higher than the average refund over the past five years. Refunds are higher on average due to some federal fiscal policy stimulus that is still flowing. In short, tax season affords households an opportunity to take advantage of any COVID relief benefits they may not have received in 2021. The tax filing season is far from over, and as we get closer to the April 18 filing deadline, these data could change. That said, filers who are owed a refund tend to file earlier than individuals who owe the government money. The average refund size might drift lower in the coming weeks, but we doubt it will be a major decline. Real personal spending data has been noisy over the past few months, but through February the level of real consumer spending is 0.3% ahead of where it was in November—an impressive feat amid raging inflation, the Omicron COVID wave and less generous fiscal support. Higher refunds may have provided a bit of a buffer to spending in February, and this boost could continue through March and April. We forecast real personal consumption grew at about a 3% annualized pace in the first quarter. If realized, this would mark the fastest pace of consumer spending growth since Q2-2021. But while refunds are a near-term tailwind for consumption, the effects will only be temporary. The one-time inflow from an outsized refund is no match for persistent price pressures. Higher inflation has pushed real disposable personal income significantly below its pre-pandemic trend, and this presents a growing concern for future spending growth. Maintaining the current pace of real spending growth will be more challenging in the second half of the year, and households likely will need to lean on their balance sheets to sustain spending growth. Download the full report

“The dollar is in strong form this afternoon, and European indices have recovered from Thursday’s decline.” FTSE 100 springs back from Thursday’s losses “The FTSE 100’s resilience is a welcome relief for UK investors. The index has bounced back from Thursday’s ex-dividend driven fall, and with mining stocks leading the way it is back on course for the recent highs. European markets generally are doing well, recouping some losses, but with the outlook so uncertain thanks to inflation and the Ukraine war this mood of optimism is unlikely to last. Next week’s ECB meeting will give investors more of a clue on how the central bank is looking at policy, even if no rate hikes are expected.” Dollar index touches new two-year peak “It’s all go for the greenback once again. After some hesitation in March the dollar appears to have rediscovered its forward momentum. Further Fed tightening seems to be the only sure thing around at the moment, and with CPI next week likely to deliver another surge in prices there is plenty of rationale to stick with long dollar trades it seems.”

In this technical blog we’re going to take a quick look at the Elliott Wave charts of GBPUSD.  The pair has given us nice trading opportunity recently.  We have been selling the rallies at 1.3298-1.3348  area as explained in previous article on GBPUSD . Reasons for calling further weakness in pair are bearish sequences in the cycle from the June 1st 2021 peak.  We recommended members to avoid buying and keep selling rallies in 3,7,11 swings when get a chance. In further text we are going to explain the Elliott Wave Forecast GBP/USD H1 Elliott Wave analysis 03.25.2022 GBP/USD has given us nice reaction lower from our selling zone. Recovery is counted completed  at 1.3299. While below that high, next leg down can be in progress. However we need to see further separation from the peak to confirm. Current view suggests as far as the price holds below 1.3222 peak – (ii) blue, next technical area to the downside ideally comes at 1.3079-.3045 . At that zone we should ideally complete 5 waves down from the 1.3299 peak. Once 5 waves down are completed and we can expect to see 3 waves bounce against the 1.3299 high. GBP/USD H1 Elliott Wave analysis 03.29.2022 We got further separation from the peak. The pair reached 1.3079-.3045 area , completed 5 waves – ((i)) black and started turning higher in recovery ((ii)) correcting the cycle from the 1.3299 peak. Short term rally from the last low looks impulsive which suggests we are ending only first leg (a) blue of ((ii)). We expect 3 waves pull back in (b) and then another leg up (c) of ((ii)) before further decline ideally resumes. GBP/USD H1 Elliott Wave analysis 04.07.2022 GBP/USD made (b) blue pull back and another leg up (c) blue of ((ii)).  The pair completed 3 waves recovery ((ii)) black at 1.3183 and made decline again as expected. The pair has broken previous low 1.305 , which made lower low sequences from the 1.330 peak. Current price structure suggests as far as the price holds below marked trend line and 1.3183 pivot holds,next tech zone to the downside ideally comes at 1.2943-1.2886 area.

GBPJPY has overstepped the 161.40 level, which is the 23.6% Fibonacci retracement of the up leg from 150.96 until the more than six-year high of 164.63, with a weakened upward drive. Though, on a positive note, the bullish bearing of the simple moving averages (SMAs) is promoting the broader positive structure.   However, the pair’s positive momentum generated around the 159.02 low and the 38.2% Fibo of 159.40 appears to be fading ahead of the crucial 162.64-164.09 barricade, something also being reflected in the dipping slope of the red Tenkan-sen line. Nevertheless, the flattened blue Kijun-sen line has yet to confirm that negative pressures have gained any convincing advantage. Meanwhile, the short-term oscillators are also reflecting this minor waning in upward drive. The MACD, far north of the zero mark, has marginally slid underneath its red signal line, while the RSI has deflected off the 70 overbought barrier. Moreover, the dive in the stochastic %K line in the overbought territory, is hinting that upside forces are feeble for now. In the negative scenario, initial support could emanate from the 23.6% Fibo of 161.40 and the nearby red Tenkan-sen line at 160.86. Retreating under the red Tenkan-sen line, the pair may then target the 38.2% Fibo of 159.40 and the adjacent low of 159.02. In the event buyers’ recent efforts become offset by the price sinking even below the crucial 157.46-158.20 support border, the bear’s focus could then shift towards a support area, linking the 50-day SMA at 156.75 with the 61.8% Fibo of 156.19. Alternatively, if the pair creates positive impetus off the 23.6% Fibo of 161.40, the bulls may rechallenge the obstructing 162.64-164.09 resistance section, shaped by the March-May 2016 highs. Should the price overpower this key boundary and pilot beyond the more than six-year high of 164.63, the buyers may then be encouraged to confront the specific highs of 166.07 and 167.63 from February 2016, which form the next resistance band. From here, upside momentum could lift the price towards the 170.62 level. Summarizing, GBPJPY’s advances continue to struggle ahead of the 162.64-164.09 key resistance obstacle. That said, if the price sinks below the 157.46-158.20 base, positive pressures could take a hit. Moreover, an extended price dive - breaching the 154.91-155.45 barrier - that also overwhelms the Ichimoku cloud and the 200-day SMA may stifle the near-term positive outlook. Keep in mind, the broader positive structure remains intact above the congested foundations spanning from 147.39 until 149.04.

Financials: June Bonds are currently 23 lower at 143’17,down about 6’00 for the last week. 10 Year Notes 16 lower at 120’01.5, down 2’12 for the week. The 5 Year note is 13 lower at 113’03.25, down 0’30 for the week. The FOMC minutes showed a consensus at the Fed to take a more hawkish stance against inflation by selling off the Fed’s balance sheet (inventory of notes and Bonds) at a quicker than previously thought pace. The figure of $1.1 trillion per year is the figure I have heard. The figure for rate hikes for the year is now 3.0-3.5%. Yields rose quickly this past week accelerating the flattening of the yield curve. Yields are now as follows: 2 Year 2.57%, 5 Year 2.74%, 10 year2.68% and 30 Year2.69%. A 0.5% rate hike is now priced into market for the May FOMC meeting. Grains: May Corn is 2’6 higher at 760’4, UP 20”0 for the week. May Beans are 13’6 higher at 1659’2, down 8’0 for the week. This morning we have Crop Production and supply/demand reports. Trends remain up and supplies should remain tight because of sanctions for the global market place. Next week I will begin focusing on Dec. Corn and Nov. Beans which are at a huge discount to May contracts. Cattle: April Cattle are unchanged at 138.00.down 195 for the week. April Feeder Cattle are also unchanged at 156.40, down 640 for the week. The high cost of feed continues to work against Feeders. My next letter will focus on the Aug. LC/Aug.FC spreads and June LC positions. Today’s crop reports could have an impact on Live and Feeder Cattle prices. Silver: May Silver is currently 9 cents lower at 24,64, down 59 cents for the week. Support is below 24.40 and Resistance26.20. Near term trend remains down. S&P: June S&P’s are 15.00 lower at 4481.00, down 6.00 for the week. Volatility remains high and price action headline dependant. SSupport remains at 4485.00 and Resistance remains at 4635.00.

There are three major central bank meetings next week: the Reserve Bank of New Zealand (RBNZ) and Bank of Canada on Wednesday and the European Central Bank (ECB) on Thursday. The ECB is likely to be on hold as usual at this meeting, so let’s go straight to the other two. The market is expecting 50 bps hikes from both, the first time in this hiking cycle that we’ve seen such aggressive moves from the central banks that we cover (other central banks have been even more aggressive; the Central Bank of Poland hiked by 100 bps this week!).  We shouldn’t be surprised at a 50 bps hike. The minutes of the March meeting of the rate-setting Federal Open Market Committee (FOMC) showed that “many participants” would have preferred a 50 bps hike but thought 25 bps was more appropriate due to the uncertainty caused by the fighting in Ukraine. “Many participants” also thought that “one or more 50 basis point increases…could be appropriate at future meetings, particularly if inflation pressures remained elevated or intensified.” Bank of Canada: +50 The Bank of Canada is widely expected to hike 50 bps. Deputy Gov. Sharon Kozicki said in a recent speech (March 25th) that “the pace and magnitude of interest rate increases and the start of QT” (quantitative tightening) are likely to be “active parts of our deliberations at our next decision in April.” Mentioning the “magnitude” was a sign that a 50 bps hike is on the table. “We are prepared to act forcefully,” she added for those who hadn’t gotten the hint. She continued, “The reasons are straightforward: inflation in Canada is too high, labour markets are tight and there is considerable momentum in demand.” Inflation definitely is too high. Not just the headline consumer price index, which at 5.7% is almost double the upper limit of their 1%-3% target range, but also two of their three core measures are above the target range (although the monetary policy target is defined in terms of the headline figure, not the core measures. Labor markets are definitely tight, too. The unemployment rate at 5.3% is significantly below the level prevailing before the pandemic (5.6%-5.7%) while employment is higher (although not yet back to the pre-pandemic trend). As for demand, retail sales are somewhat above their pre-pandemic trend, but it looks to me that demand was unusually sluggish in 2018/2019 and has since recovered to trend. Either way, it’s indisputable that there is “considerable momentum in demand.” Accordingly, the market is expecting a very steep tightening cycle – the rapidest on record with the total tightening equal to the most on record (at least since they started using the overnight lending rate in December 1992). The thing is, the US is also expected to tighten policy rapidly. As a result, the gap between Canadian and US rates at the end of this year is now expected to move about 5 bps in favor of the US, whereas at the start of the year it was expected to move 50 bps in Canada’s favor. Nonetheless that hasn’t particularly hurt CAD, probably because the price of Canada’s oil is up about 30% so far this year. There’s also the question of what to do about the Bank of Canada’s bloated balance sheet. The Bank of Canada had far and away the most expansive quantitative easing (QE) policy of any of the major central banks – it blew up its balance sheet to almost 5x its pre-pandemic size! This compares with a 114% increase for the Fed and 88% increase for the ECB. Deputy Gov. Kozicki said they would be discussing the start of QT – we can hope to hear some specifics on this topic. At this point, I think oil prices and the outlook for global growth are probably more important than interest rates in determining USD/CAD. Nonetheless if the market perceives the Bank of Canada as being more hawkish than expected – particularly if they hint at a more rapid reduction in their balance sheet than the Fed – this could help to bolster the currency. RBNZ: Also a good chance at +50 Ditto for the Reserve Bank of New Zealand (RBNZ). The RBNZ was expected to start hiking in August last year but held off because the country went into lockdown. It did become the first of the G10 central banks to hike rates (if I remember correctly) at the next meeting, in October, when it raised the Official Call Rate (OCR) by 25. It’s hiked by 25 bps at each of the subsequent two meetings since then and left no misunderstanding about its intentions when it titled the February announcement “More Tightening Needed.” “The Committee agreed that further removal of monetary policy stimulus is expected over time given the medium-term outlook for...

USD/JPY  The USDJPY continues to trend higher and extend uninterrupted recovery from a higher base at 121.27 (Mar 30/31) into sixth straight day, on track for the fifth consecutive strong weekly gains. Today’s acceleration cracked pivotal Fibo resistance at 124.19 (76.4% of 125.09/121.27 pullback) close above which would confirm that corrective phase is over. Bulls pressure the last obstacle at 124.30 (Mar 29 high), to open way for test of 125.09 (2022 peak), the highest in nearly 7 years and key longer term barrier at 125.84 (2015 high). Technical studies are firmly bullish on daily and weekly chart, pointing to underlying bullish structure, however, overbought conditions on both timeframes, warn that bulls may pause for a consolidation under key barriers before resuming. Dips should offer better buying levels, with solid supports at 123.10/122.70 expected to ideally contain, although deeper dips cannot be ruled out. Near-term bias will remain with bulls while the action holds above key support at 121.27, but caution if the price approaches this level, as break lower would sideline bulls on completion of daily failure swing pattern. Res: 124.50; 125.09; 125.84; 126.50. Sup: 123.60; 123.10; 122.70; 122.20. Interested in USD/JPY technicals? Check out the key levels

Looming stagflation in the eurozone has complicated the European Central Bank’s life. Higher inflation for longer and a very uncertain outlook for growth not only in the short but also longer term will worsen the ongoing controversy between ECB hawks and doves. We hope for somewhat more clarity on how the ECB sees its own options at next week’s meeting. The economic implications of the war in Ukraine are only slowly starting to show in official statistics and forward-looking indicators. While the eurozone might still have avoided a contraction of economic activity in the first quarter, the near-term outlook is anything but rosy. Ongoing supply chain frictions in China, new supply chain frictions as a result of the war, trade disruptions, uncertainty, and above all high energy and commodity prices, will significantly weigh on economic activity in the coming months. The risk is high that not only consumption will suffer under high energy and commodity prices but also companies will have increasing problems dealing with rising costs. And this scenario is not even taking into consideration that additional sanctions could lead to serious energy supply disruptions. To use ECB language: the economic outlook for the eurozone has clearly worsened and risks are definitely tilted to the downside. The latest inflation numbers will once again have made ECB staff cry. It is deja-vu, with the same thing happening almost every month; headline inflation coming in higher than the ECB expected. With higher energy and commodity prices and the actual March headline inflation of 7.5%, the ECB’s inflation forecast of 5.1% for this year is already outdated. We no longer exclude double-digit monthly inflation rates over the coming months. Risks to the inflation outlook are definitely tilted to the upside. As naive as it might sound, the rise in headline inflation is to a large extent still mainly driven by energy and commodity prices and could therefore still be labelled as transitory or temporary. Only that this period of transition takes extremely long and will very likely lead to permanently high price levels, which in turn are harmful to consumption and economic activity in general. ECB facing looming stagflation This described macro-economic backdrop with looming stagflation has complicated the ECB’s life and probably also widened the rift between doves and hawks. While the doves are likely to focus on the worsening economic outlook and high uncertainty, arguing in favour of a very gradual, if any, normalisation of monetary policy, the hawks have been very vocal in calling for at least two rate hikes this year. For them, the risk is high that the ECB has fallen behind the curve. They probably also fear that the window for monetary policy normalisation is closing very quickly in case the eurozone continues flirting with recession, the US economy would slow down at the turn of the year and the Federal Reserve would make a full U-turn on its current tightening cycle. Distinction between normalisation and tightening Up to now, the ECB has officially always stressed the optionality and data dependence of its next decisions. Nothing is wrong with this but if there are too many options on the table, observers and financial market participants can get confused. And this is exactly what, at least in our view, the latest market pricing of four ECB rate hikes this year is showing. Therefore, it would be good for the ECB to add somewhat more colour to its optionality or even limit the optionality to only a few options at next week’s meeting. A possible way forward, which would also bridge the rift between doves and hawks and would enable the ECB to tread very carefully in these times of high uncertainty, would be an even more explicit distinction between policy normalisation and monetary policy tightening. Normalisation would include an end to net asset purchases and bringing the deposit rate back to zero. Tightening would be the start of a longer rate hike cycle, bringing rates close to, or even above, neutral levels (wherever these levels might be). Normalisation seems to be acceptable for both hawks and doves – there are only different views regarding the timing. Tightening is definitely not yet an option for the doves, and even not for all hawks. Looking beyond normalisation We still think that the ECB will have ended its net asset purchase programme in the third quarter and will return the deposit rate back to zero at the latest around the turn of the year. With the current inflation outlook, there is a risk that this return to zero could happen slightly earlier but more on this later. Once the deposit rate is back at zero, the longer-term inflation forecasts will be of even higher importance for any next step. Unless energy prices continue to accelerate, there will be negative base...