ECB heading for a hawkish 25bp hike

Despite President Lagarde’s hawkish language at Sintra and inflation once again coming in higher than expected in June, we think the ECB will raise rates by “only” 25bp later this month. However, with underlying price pressures still very strong, it will probably step up the pace later this year. Next week we expect to learn that both German industrial production and euro-zone retails sales edged up in May, but the more forward-looking PMIs for June will confirm that the economy is slowing.