By Altaf Kassam, EMEA Head of Investment Strategy and Research at State Street Global Advisors

“Our baseline expectation for the ECB meeting on 4th May is another 50 basis points (bps) hike. We continue to see an uncomfortable persistence in inflation numbers so far this year, meaning another increase of 50 bps in May is not “locked in”, but the most likely outcome in our view.

However, given lingering concerns on the variable and lagged effects of their previous actions, and continued issues around the banking sector (although still focused on the US), , this time risks are tilted to the downside, and we would not completely rule out a more dovish 25 bps increase.

The tone of ECB commentary has been more mixed recently, with hawks pointing to this persistence in inflation, but doves making the point that terminal rates are drawing closer, which certainly agrees with market pricing. For us, taking this all together, and bearing in mind the somewhat surprising strength in equity markets so far this year, we believe the ECB could see their way to ratchet financial conditions a notch tighter than markets anticipate.”