UBS adds March rate hike to ECB forecast. Here is why.

UBS has revised its European Central Bank forecast to include a rate hike in March, a shift from its prior expectation of policy easing. The move points to a repricing of euro-area inflation persistence, which typically lifts short-end euro rates through the policy-expectations channel and narrows the rate differential that has weighed on the euro against the dollar. Euro-area sovereign bonds, particularly two-year Bund and Schatz yields, and bank equities that benefit from higher net interest margins are the most directly exposed, while rate-sensitive sectors such as real estate and utilities face pressure from higher discount rates. Traders will watch the flash eurozone HICP inflation release and ECB speakers' commentary ahead of the March meeting for confirmation of whether services inflation is supporting a hawkish turn.

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