A look at the day ahead in European and global markets by Kevin Buckland
A momentous few weeks for global central banks brings policy decisions from two of the biggest on Thursday: the European Central Bank and the Swiss National Bank.
Interest rate cuts by both countries are not in question, but how deep these cuts will be is still up for debate.
The Swiss central bank will decide first, and market-implied odds have tilted towards a half-point cut to 0.5%, which has risen in recent weeks after Chairman Martin Schlegel raised the possibility of a return to negative interest rates if that were necessary to dampen investor interest in interest rates. safe haven franc.
At the ECB, a more standard quarter-point cut is seen as the most likely outcome, but the 15% chance of a half-point cut suggests traders see this as a non-negligible risk. The balancing act for Europe’s central bankers is an economy headed for recession, even as some of the more hawkish officials say inflation is still a concern given rapid wage growth and soaring services costs.
The potential for high US rates comes in January and simmering political crises in both Germany and France – the heart of the eurozone – add additional uncertainty.
Whichever way the ECB goes today, there will undoubtedly be further easing: markets are priced for cuts at every meeting until June, followed by at least one more cut in the last half of 2025.
Corners of the market are looking forward to some major milestones in the euro, including pre-Brexit levels against sterling and even parity with the dollar for the first time since late 2022.
The United States will release PPI figures later on Thursday, a day after an expected and less than positive reading of consumer inflation all but cemented a Federal Reserve rate cut for December 18 in the market’s memory.
The rally on Wall Street that followed the CPI data and pushed the Nasdaq above 20,000 for the first time has spread to Asia, which bodes well for European shares.
Meanwhile, the yuan stabilized on Thursday after the PBOC instituted a slightly stronger fix. It had come under pressure the day before after a Reuters report that Beijing was considering further downgrades to counter an eventual US trade war.
Key developments that could impact the markets on Thursday:
-SNB, ECB policy decisions
-Sweden, Ireland CPI (both November)
-US PPI (November)
(by Kevin Buckland; editing by Edmund Klamann)