One ECB Rate Hike 'Could Be Enough,' ING Economist Says

ING chief economist Marieke Blom said subdued core inflation, services inflation and wage pressures suggest the European Central Bank may need only one additional rate hike. The view signals a relatively dovish outlook for the ECB's upcoming policy decision and implies limited further tightening in the euro area.

Analysis

The tradable implication is not the next ECB move itself but whether the terminal-rate premium embedded in the front end unwinds. A confirmation that further tightening is conditional rather than automatic should steepen the German curve: 2-year Bund yields would fall faster than 10-year yields, easing duration pressure on European growth equities and highly leveraged real-estate credits over the next 1-3 months.

For ING, a lower-than-feared terminal rate is initially mixed. Net interest income expectations have been a major earnings tailwind, but the marginal benefit of one additional hike is likely smaller than the valuation benefit from lower recession probability, lower credit-loss provisioning, and improved mortgage/real-estate asset quality. The better relative expression is likely diversified banks with deposit franchises versus lenders more exposed to commercial real estate or wholesale funding; a dovish pivot can compress the risk premium on the former while exposing the latter's weak underlying loan growth.

Consensus may overstate the bullishness of an early ECB stopping point for European banks. If the curve bull-steepens because markets price weaker growth rather than a clean disinflation outcome, loan demand and fee income deteriorate and NII rolls over during 2025 repricing cycles. The thesis is falsified if services inflation or negotiated wage data reaccelerate, forcing markets to restore additional hikes and pushing the 2-year Bund yield back above its pre-decision range within days.

Key Decisions for Investors

• Ahead of the decision, favor a 1-3 month long-duration European equity expression via long EZU or selectively long ING rather than adding broad European bank beta; target a modest 5-8% upside if front-end yields decline, with a stop if post-meeting guidance restores a clearly open-ended hiking bias.
• Express the rates view through a 2s10s German Bund steepener over the next 1-3 months: receive 2-year versus pay 10-year. The catalyst is a shift from terminal-rate repricing to growth-risk pricing; exit if incoming euro-area wages/services CPI invalidate the disinflation narrative.
• Pair trade for a dovish outcome: long ING versus short a higher-risk European real-estate/wholesale-funded bank basket, sized market-neutral. ING should benefit more from lower expected impairments, while the short leg remains vulnerable if commercial-real-estate stress persists; reassess at third-quarter loan-loss guidance.
• Do not chase an immediate EUR selloff without confirmation from rates. Use FXE puts or EUR/USD downside only if the 2-year Bund yield falls materially after the meeting; a hawkish hold with resilient inflation data would create asymmetric reversal risk.