• Financial Directions
• January 5, 2025

A New Wave of "Super Central Bank Week" Globally

Advertisements

On the evening of December 12, the European Central Bank (ECB) made a significant announcement, cutting its key interest rates across the board by 25 basis pointsThis brought the deposit facility rate down to 3.0%, the main refinancing rate to 3.15%, and the marginal lending rate to 3.40%.

This decision marks the fourth rate cut by the ECB in 2023, a notable adjustment that reduces the benchmark interest rate to its lowest level since MarchThe last reduction had occurred in June, indicating a proactive response to current economic challenges.

Interestingly, the ECB's latest statement omitted the previous commitment to maintain rates at a "sufficiently restrictive" level, hinting at the possibility of further cuts

Moreover, they warned about a weaker growth outlook compared to earlier projections.

On the same day, major European stock indices experienced an uptickThe German DAX gained 0.04%, the French CAC40 rose by 0.13%, and the UK’s FTSE 100 increased by 0.15%, reflecting positive investor sentiment following the rate adjustments.

Economic Growth Forecasts

In November, inflation in the Eurozone climbed back above the ECB’s target of 2%, rising to 2.3% from 2% in OctoberThe Eurozone economy had managed to grow at its fastest rate in two years during the third quarter, albeit a modest 0.4%.

Despite this inflation uptick, the ECB is optimistic about progress in the anti-inflation campaign

• Rate Cut! Fed Dot Plot Disappoints
• Wall Street Frenzy Cools: Outlook for U.S. Stocks
• Greece Leads EU in Investment Growth
• Bitcoin Surpasses $100,000: Start or Peak?
• CPI and Federal Reserve Expectations as Key Variables

The central bank projects inflation to be at 2.4% in 2024, declining to 2.1% in 2025 and further to 1.9% in 2026. These figures mark a downward revision from their September expectations of 2.5%, 2.2%, and 1.9%, respectively.

Christine Lagarde, the ECB's president, reiterated the central bank's policy stance in a subsequent press conference, emphasizing the waning momentum in economic growth.

The ECB anticipates GDP growth rates of 0.7% in 2024, 1.1% in 2025, and 1.4% in 2026. This cautious outlook aligns with broader economic concerns across the continent.

Sylvain Broyer, an economist with S&P, views inflation in the short term as manageable, yet stresses that vigilance is crucial, especially as labor costs continue to outpace productivity

He foresees the ECB continuing its accommodative stance with faster rate cuts over the coming months to align monetary policy with evolving economic conditions.

Carsten Brzeski from ING highlights the ECB’s preparations for a potential slowdown in growth while grappling with the unpredictability of U.Spolicies, particularly those that the government may imposeHe notes that the recovery in tourism for Southern European economies could emerge as a positive factor in 2025, although developments in Germany and France remain critical focal points.

Following the ECB's rate decision, traders in the swaps market maintained their bets largely unchangedThey predict that the ECB will implement five additional 25 basis point cuts by September of next year, bringing the deposit rate down to 1.75%. Conversely, the U.S

Federal Reserve is also expected to cut rates by approximately 75 basis points over the same period, targeting a policy range of 3.75% to 4%.

A Global "Super Central Bank Week"

This week has been dubbed a "Super Central Bank Week" globally.

Just hours before the ECB's announcement, the Swiss National Bank (SNB) surprised markets by lowering its policy rate by 50 basis points to 0.50%, marking the fourth consecutive cut for the yearInitial expectations had called for a reduction of only 25 basis pointsThis adjustment represents the most significant drop since the SNB's unexpected easing in January 2015.

The SNB acknowledged that the rate cut is primarily a response to decreasing inflationary pressures

Since the last cut, the Swiss Consumer Price Index (CPI) has again dipped below expectations, with inflation dropping from an increase of 1.1% in August to just 0.7% in November, with declines across the prices of various goods and services.

The Swiss central bank maintains an outlook of uncertainty regarding the global economyThey cite ambiguity surrounding the future direction of U.Seconomic policies, alongside rising political uncertainties in EuropeThere are also concerns that geopolitical tensions could dampen global economic activityMoreover, it remains possible that inflation could rebound in certain nations.

On December 11, the Bank of Canada cut its rates by 50 basis points to 3.25%, as anticipated, marking its fifth consecutive rate reduction.

The easing cycle in Canada began in June, with a 25 basis point cut, followed by additional reductions of the same magnitude in July and September, capped by a larger 50 basis point drop in October, matching the recent adjustment.

Canada has emerged as a forerunner in this monetary easing trend, being the first G7 country to implement rate cuts