Research by the European Central Bank shows that household consumption in the eurozone will remain suppressed for some time as the effects of past interest rate hikes continue to impact mortgages.
In a paper published on Wednesday, economists at the European Central Bank wrote that even if the ECB cuts the deposit rate from 4% to 2% starting from June 2024, the impact will still persist. This is because fixed-rate loans obtained when inflation was lower are still maturing. For those refinancing loans, their borrowing costs will jump to the current level.
The article states: “It is expected that the cash flow channel will continue to exert significant contractionary pressure. All else being equal, despite the ongoing easing cycle, this should further dampen consumption by increasing mortgage payments.”
Such development could once again undermine the European Central Bank’s view that a consumer-led economic recovery is on the horizon. For a long time, officials have hoped that lower interest rates, the current inflation rate close to the 2% target and rising wages would prompt households to increase spending, but so far this has hardly happened.
Although the current US tariffs are seen as undermining confidence, the ECB’s research highlights the role of higher mortgage costs in reducing disposable income.
The author states: “Between 2022 and 2030, the impact on total consumption will reach one percentage point, of which 35% of the impact has yet to materialize.”
The European Central Bank said that although floating-rate mortgages have responded quickly to the ECB’s interest rate hikes since 2022, fixed-rate loans are now more common than in the past. The report said that fixed-rate loans are more common in Germany and France than in Spain and Italy.
Technical analysis:
Gold: The overnight price probed the yellow block but did not break through, and then rebounded significantly. The intraday combination of blue momentum signal + yellow liquidity sweep remains; however, the range has contracted significantly. For detailed positions, please consult the plugin.
The plugin is updated from 12:00 to 13:00 every trading day. If you want to experience the same plugin as shown in the picture, please contact V: Hana-fgfg and note “666” in the message.
The Nasdaq: After rising above 21,821 overnight, the price quickly started to fall. The yellow block we marked was very effective. For today, we will continue to follow the strategy of sweeping liquidity and then shorting on the pullback. For detailed positions, please consult the plugin.
(NASDAQ 15-minute chart)
The plugin is updated from 12:00 to 13:00 every trading day. If you want to experience the same plugin as shown in the chart, please contact V: Hana-fgfg and note “666” in the message.
Crude oil: Pay close attention to the breakthrough situation at the end of the triangle convergence within the day. Here, the bulls should participate in 1-2 times. Additionally, below 72.55, add a yellow sweep liquidity to defend for a low buy. For detailed positions, please consult the plugin.
(Crude Oil 15-Minute Chart)
The plugin is updated from 12:00 to 13:00 every trading day. If you want to experience the same plugin as shown in the picture, please contact V: Hana-fgfg and note “666” in the message.
Today’s key economic data and events to focus on:
At 16:00, the governor of the Swiss National Bank, Thomas Jordan, holds a press conference.
19:00 Official Bank Rate of the United Kingdom
The U.S. stock market will be closed for the Juneteenth holiday.
