ECB expected to cut rates this week

The European Central Bank is expected to cut interest rates by 25 basis points this week, amid mounting concerns over economic stagnation and declining inflation across the Eurozone.

By Ahmed Azzam | @3zzamous | 14 October 2024

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  • ECB expected to cut deposit rate by 25bps this week due to slowing inflation

  • China’s September CPI growth slowed to 0.4% yoy, missing expectations

The European Central Bank (ECB) is poised to reduce interest rates this week, as concerns mount over stagnating economic growth and a steeper-than-expected drop in inflation across the Eurozone. Market sentiment has shifted rapidly, with a recent Reuters poll showing that 70 out of 75 economists now expect the ECB to lower its deposit rate by 25 basis points (bps). This is a significant change from just a month ago, when only 12% of those surveyed predicted such a move. Additionally, 68 economists anticipate a further 25bps cut in the near future.

China's CPI weakens further

Over the weekend, China’s latest inflation data for September highlighted continued weakness in price momentum, reinforcing concerns over sluggish domestic demand. Headline consumer price index (CPI) growth slowed to 0.4% year-on-year (yoy), down from August's 0.6% and falling short of market expectations. Core CPI, excluding volatile food and energy prices, inched up just 0.1% yoy, its weakest pace since February 2021. This marks the 20th consecutive month where core inflation has remained below 1%, pointing to tepid consumer spending and raising the case for stronger economic stimulus.

On the industrial side, producer prices (PPI) declined by 2.8% yoy in September, a sharper fall than August's 1.8% drop and worse than the forecasted 2.5% decline. This marks the 24th straight month of negative PPI readings, further illustrating the challenges facing China’s industrial sector.

Muted market response to China's fiscal stimulus plans

The Asian markets opened quietly on Monday, with Japan observing a public holiday and the U.S. and Canada coming off extended weekends. Reactions to China’s anticipated fiscal stimulus have been subdued, as investors await more concrete details following the Finance Minister's weekend briefing. Without specifics on the stimulus measures, traders are hesitant to fully assess the broader implications for China’s economic trajectory.

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