LONDON (Reuters) – The European Central Bank cut interest rates for the third time this year on Thursday, pointing out that inflation in the euro zone is now increasingly under control and the economic outlook has worsened.
The euro initially rose following the rate decision, but fell back following stronger-than-expected U.S. data. It was last trading 0.25% lower on the day at $1.0836, compared with $1.0863 just before the ECB announcement <EUR=EBS>.
Europe’s broad STOXX 600 index was last up 0.8% , while Germany’s 10-year government bond yield, the benchmark for the bloc, was last up 3 basis points at 2.21%, versus 2.197% previously. Yields move inversely to prices.
COMMENTS:
ROBERT FARAGO, HEAD OF STRATEGIC ASSET ALLOCATION AT HARGREAVES LANDSDOWN, UK:
“Growth is so slow in Europe and inflation is back at target, it would be a surprise if they (the ECB) didn’t continue to cut.”
“I think in practice for European stocks, what matters more is what’s happening in the U.S., because in the U.S., the rate decision is more difficult, given that the economy remains very strong and core inflation remains potentially pretty sticky.”
“The U.S. is where we look for a surprise. I think the case for European rate cuts is pretty clear cut.”
“During the (ECB chief Christine Lagarde’s) speech, we’ll be focused on the stickiness of wage inflation, core inflation, service inflation.”
DEAN TURNER, CHIEF EUROZONE ECONOMIST, UBS GLOBAL WEALTH MANAGEMENT, LONDON:
“In our view, this is unlikely to be the last cut from the ECB this year. Another cut is likely in December, and we expect this will be followed by a series of cuts at every meeting through to June next year, with the deposit rate hitting 2% before the ECB reaches for the pause button.”
“In the equity market, small and mid-caps in the euro zone offer attractive value and should be one of the main beneficiaries of ECB rate cuts, in our view.”
“We expect the lower rates environment, together with the ongoing resilience in the U.S. economy to support cyclical currencies like the euro, which we expect to perform well against the U.S. dollar in the coming months.”
ROBERTO MIALICH, FOREX STRATEGIST, UNICREDIT, MILAN:
“The message is exactly what we had in mind. ECB cut rates and made it clear that they are still dependent on data.”
SEEMA SHAH, CHIEF GLOBAL STRATEGIST, PRINCIPAL ASSET MANAGEMENT, LONDON:
“It has become increasingly evident that gradual ECB monetary easing is insufficient and that back-to-back rate cuts are necessary.”
“While the ECB has resisted providing forward guidance and President Lagarde will emphasise data dependence, it is unlikely that there will be such a turnaround in the data in the next month that the central bank can afford to stand pat in December.”
“And while inflation pressures may continue to trouble the Governing Council, the troubling state of the euro area economy suggests that the path forward is fairly clear.”
CARSTEN BRZESKI, GLOBAL HEAD OF MACRO, ING, FRANKFURT:
“The decision to cut rates only five weeks after the last cut and with only very few pieces of economic data since then, suggests that the ECB must have become much more concerned about the euro zone’s growth outlook and the risk of inflation undershooting the target. Interestingly, the official language in the ECB’s decision was almost unchanged from the September meeting.”
MATTHEW LANDON, GLOBAL MARKET STRATEGIST, JPMORGAN PRIVATE BANK, LONDON:
“The European Central Bank abandoned their quarterly cadence of cuts with a second consecutive 25 bps rate reduction. This appears to send a clear signal to the market that concerns within the Governing Council are shifting from inflation to growth. It is hard to disagree.”
“They didn’t give much away in terms of what to expect going forward. We expect to see sequential cuts into 2025 towards a terminal rate around 2%.”
“Faster cuts and slower growth should keep pressure on European assets. The euro in particular feels vulnerable, and has been one of our preferred shorts into the U.S. election. We’ve been anchoring on a $1.07-1.11 range on euro/dollar, but that could skew 3-4% lower if higher tariffs become a real possibility post-election.”
MARK WALL, CHIEF EUROPEAN ECONOMIST, DEUTSCHE BANK, LONDON:
“The cut is still significant in the sense that the ECB has accelerated the easing cycle with the back-to-back cut. At the same time, the ECB continues to avoid guidance and is not committing to a particular path for policy. This is sensible given the uncertainties that lie ahead.”
“Chances are that today’s decision represents a pivot point into a faster normalisation of monetary policy.”
ARNE PETIMEZAS, DIRECTOR RESEARCH, AFS GROUP, AMSTERDAM:
“ECB cuts rates by 25 bps expected. Inflation and economic assessment is stating the obvious, and contains no surprises.”
“However, I had expected the ECB would drop the ‘not on a particular rate path’ language from the statement and instead, acknowledge that we’re now in an easing cycle. After all, this is the third cut in four months.”
MARCHEL ALEXANDROVICH, ECONOMIST, SALTMARSH ECONOMICS, LONDON:
“The ECB lowers interest rates at consecutive meetings for the first time since 2011 and looks set to cut again in December.”
“Even after today’s move, policy remains in restrictive territory. And with inflationary pressures easing, the Governing Council feels comfortable to nudge interest rates lower toward their neutral level.”
(Reporting by the Reuters Markets Team, Compiled by Dhara Ranasinghe; Editing by Amanda Cooper)
