A look at the day ahead in European and global markets from Kevin Buckland
The big two weeks for global central banks come with policy decisions from two of the biggest banks on Thursday: the European Central Bank and the Swiss National Bank.
Interest rate cuts by both are not in doubt, but how deep these cuts will go is still up for debate.
The SNB decides first, and market implied odds are leaning towards a half-point cut to 0.5%, increasing in recent weeks after Chairman Martin Schlegel signaled the possibility of a return to negative interest rates if necessary to dampen investor appetite for rate cuts. The safe haven franc.
At the ECB, the more usual quarter-point cut is seen as the most likely outcome, but the odds of a half-percentage-point cut suggest traders view it as a significant risk. For European central bankers, the budget process is an economy teetering toward recession, even as some of the more hawkish officials argue that inflation remains a concern given rapid wage growth and rising service costs.
The United States is likely to impose significant tariffs in January, and escalating political crises in Germany and France – the heart of the eurozone – will create further uncertainty.
Whichever direction the ECB takes today, there is no doubt that more easing is coming: markets are pricing in cuts at every meeting until June, followed by at least one additional cut in the latter half of 2025.
Some of the euro’s key highlights are coming into focus in corners of the market, including pre-Brexit levels against sterling and even parity with the dollar for the first time since late 2022.
The US will release Producer Price Index numbers later on Thursday, a day after an unexpected and not-so-hot consumer inflation reading reinforced in the market’s minds the Fed’s December 18 interest rate cut.
Wall Street’s rally that followed the CPI numbers, which pushed the Nasdaq above 20,000 for the first time, has extended to Asia, which bodes well for European stocks.
Meanwhile, the yuan was steady on Thursday after the People’s Bank of China set a slightly stronger fix. The currency came under pressure the previous day after a Reuters report stated that Beijing was considering further devaluation to confront any US trade war.
Key developments that may impact markets on Thursday:
-Swiss Central Bank and European Central Bank policy decisions
– CPI in Sweden and Ireland (both November)
-US Producer Price Index (November)
(Writing by Kevin Buckland, Editing by Edmund Claman)