JPMorgan AM and Pictet take “one-and-done” stance ahead of ECB, betting weak growth limits tightening

European Central Bank scrutiny will intensify this week after two major money managers, JPMorgan Asset Management and Pictet Asset Management, outlined a contrarian view for the June policy meeting. In a stance described as a potential “one and done” outcome, JPMorgan Asset Management argued that weak and disappointing economic growth across the euro area would make the expected ECB rate increase an isolated move, not the start of a broader tightening campaign. Pictet Asset Management, together with Carmignac, went further, saying policymakers would be justified staying on hold altogether.

The divergence matters because it is aimed directly at the question investors care about most after a rate decision: what the ECB says next, and whether markets should price additional increases. According to the report, if the asset managers are right, bonds could rally as traders recalibrate yields from already elevated levels, with sentiment hinging on central bank messaging rather than only the immediate policy action.

JPMorgan Asset Management’s global market analyst Zara Nokes said the ECB is unlikely to pursue further rate cuts after Thursday’s meeting if economic activity remains sluggish, even if the ECB emphasizes its commitment to returning inflation to target. Pictet’s chief strategist Luca Paolini argued that the market expects “three” moves, with the ECB likely to do one hike primarily to show it is reacting to inflation data, while “the European economy is not picking up.”

The “one-and-done” argument leans on a mix of growth weakness and inflation uncertainty. The report cited the retreat of inflation expectations from earlier highs after the start of the war in Iran. It noted that the one-year, one-year inflation swap rose from 1.75% at the end of February to 2.40%, then eased to 2.12%, hovering just above the ECB’s 2% target.

On growth, the report pointed to data showing euro area gross domestic product declined in the first quarter rather than growing as economists expected, attributing part of the disappointment to a sharp downward restatement for Ireland. It also referenced an OECD assessment projecting euro area growth of 0.8% for the year and warning about “deteriorating sentiment.” Those developments, the report suggested, could limit how aggressively the ECB presses rates higher without risking policy reversal later.

Not everyone agreed with the “limited move” thesis. Guillaume Rigeade, co-head of fixed income at Carmignac, said the euro area can absorb 25 basis points of additional tightening, but the risk changes if the ECB enters a cycle of back-to-back hikes. He also flagged an approach of being long in shorter-duration German bonds on the view that the ECB will not hike as many times as the market has priced, while staying negative on longer-dated European bonds amid concerns that heavy government borrowing could weigh on bond prices.

A Bloomberg survey referenced in the report found that economists are mostly aligned with the idea that Thursday brings a quarter-point hike, with all but one respondent expecting the move. Most of those respondents also saw another increase before the end of the year and a cut only mid next year, after earlier forecasts that had pointed to an earlier easing in March. The report also included other portfolio positioning themes, including tactical duration shifts by some investors and a minority view that inflation could force additional hikes.

Still, important specifics are not resolved ahead of the meeting. The asset managers did not present full probability distributions or a detailed reaction function tied to particular inflation prints, and the report did not spell out what level the ECB would target for the deposit rate. The path after June therefore remains sensitive to the ECB’s guidance, incoming macro data, and the evolution of oil prices, which the report noted as a key variable for inflation expectations. The same sensitivity will likely show up quickly in European bond yields once the ECB communicates its next-step intentions.