September 12, 2024

“Markets currently estimate a 40% chance of another ECB rate cut in October. However, if Christine Lagarde emphasises the importance of quarterly projections in her remarks today, that probability could drop significantly. A rate cut in October would only be justified by a severe economic downturn, but with limited new data anticipated before then, the likelihood seems very slim.”

Sam Cornford – Head of Trading

USD

slightly higher-than-anticipated core US CPI for August saw a modest reduction in the expected 2024 Fed rate cuts, though 100 basis points are still anticipated. Attention today turns to August PPI data and weekly jobless claims, with the latter expected to hover around 225,000. Market focus has shifted from inflation figures to economic activity, particularly employment. The dollar is softer today as risk sentiment improves.

GBP

The Pound Sterling fell by 0.30% during the North American session yesterday, following UK economic data indicating a slowdown in growth. Moreover, UK rates experienced a notable drop and have been trending lower throughout the month, with two-year sterling swap rates down around 30 basis points. It’s uncertain whether this is due to the weak UK GDP figures released yesterday or a broader expectation that global rates will decline, with the UK likely to follow, despite the lack of communication from the Bank of England.

EUR

The ECB is set to announce its rate decision today, with a 25bp cut to the deposit rate anticipated, lowering it to 3.50%, and a 60bp cut to the Main Refinancing Rate in a technical adjustment. Key factors driving the anticipated rate cut include slow economic growth throughout the eurozone and easing inflation, which moved closer to the central bank’s 2% target in August. For many in the market, the main question isn’t whether the ECB will cut rates today, but whether it will offer any insight into future actions. Economists at Berenberg Bank predict the ECB will pause at its 17 October meeting, similar to July, before cutting rates by another 0.25% on 12 December.

Markets

US stock futures edged up yesterday night as investors prepared for upcoming inflation and labour data, following a turbulent session driven by the August consumer price index release. Dow Jones futures rose by 68 points (0.18%), while S&P 500 and Nasdaq 100 futures gained 0.19% and 0.27%, respectively. European stocks surged this morning as investors awaited the European Central Bank’s latest monetary policy decision. The pan-European Stoxx 600 had risen 1.23%, with all sectors and major markets in positive territory. Tech stocks led the gains with a 2.5% rise, followed by mining stocks, up 2.05%.

Main Economic Events (All Times CET)

2:15pm: ECB Rate Decision
2:30pm: US PPI Inflation & Unemployment Claims
2:45pm: ECB Press Conference

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