Morning from Europe.

The ECB members went on parade yesterday with warnings that another round of subsidies aimed at mitigating the effects of higher energy prices would prove catastrophic for the combat against inflation.

The ECB is likely to keep hiking if fiscal policymakers open the aid package floodgates again this Winter, and no one likes hikes at this juncture – not even the ECB. At this juncture, the combo of central banks wanting to pause while fiscal authorities keep spending, seems like the perfect bear steepener cocktail to us. Just watch the markets.

The floodgates remain wide open in the US and we are of the view that the US would have been in a light recession alongside peers already now, if it wasn’t for the Inflation Reduction Act. We will release our in-depth analysis on the topic later today.

Construction spending has only been saved by Manufacturing spending due to an extreme spike in the construction activity of factories in for example the semiconductor space.

Chart 1: The US would have been in a construction recession without the IRA