Price stability alone won’t drive growth, according to the ECB Vice-President. To achieve growth, we also need to boost productivity, enhance competitiveness, and maintain a well-functioning labor market. The ECB believes it has successfully kept inflation stable. Now, it is shifting focus toward investing in AI, reducing regulatory barriers, and increasing government spending. These steps suggest positive changes for productivity in the EU. Guindos has highlighted that while lowering inflation is crucial, it doesn’t fully support real economic growth. Keeping prices stable is just one piece of the puzzle. Future economic output will greatly rely on structural reforms and better use of capital and labor. With inflation under control and interest rates likely to stay high for now, our focus should shift to the factors that drive long-term growth. Guindos emphasizes productivity, which carries particular importance for those involved in investing: efficiency improvements are no longer merely goals; they are essential. Furthermore, the suggestion that AI and digitalization can enhance output is not just talk. This reflects real investment trends we’ve noticed in bonds and equity-linked structured instruments. For us, this means pricing models should now factor in a more proactive public sector, less burdened by red tape. This could strengthen value positions, especially where policy changes can boost demand in specific sectors. When we consider Guindos’s remarks on fiscal adjustments, it’s clear that monetary tools alone won’t suffice. There’s an acknowledgment that ongoing recovery will require broad collaboration, such as increasing public funds for infrastructure and green initiatives. As a result, yield curves might start reflecting more than just central bank expectations. We may see widening spreads where stimulus is focused, with tighter conditions in other areas. For trading strategies, here’s what to do: keep an eye on correlation breakdowns, especially in the two- to five-year range. Markets often underestimate medium-term fiscal impacts at first, so if policy turns predictable, reconsider duration exposures. In other words, it’s not just the inflation rates that will make a difference now — it’s how countries adjust their spending and investment that will influence models and forecasts. Labor market reforms, while not always the most attention-grabbing, significantly impact hiring flexibility and costs. Changes in wage-setting, especially in rigid states, could cause volatility in consumer-linked sectors and insurance pricing. This creates tradable effects. Short-term volatility might seem unrelated, but structural changes, once factored in, can reset baselines and alter option pricing dynamics — something we’ve already seen in recent volatility trends. In summary, the message is clear, despite its subtle delivery. Monetary restraint has played its part. Now, we need to focus on how efficiently economies use their resources — this will determine performance differences. And these differences are where we find opportunities.

here to set up a live account on VT Markets now