Views mixed on ECB trajectory after hot inflation print
STOXX 600 up 0.3%
Miners lead, travel & leisure lags
EZ CPI edges up
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VIEWS MIXED ON ECB TRAJECTORY AFTER HOT INFLATION PRINT
The euro zone inflation figure for November is in, and at 2.3% it's higher than expected, but close enough to the central bank's 2% target that traders are sticking with bets on a 25 bps cut at the next meeting rather than a 50-bp one.
But views are mixed on what the European Central Bank should do.
Natasha May, global market analyst at J.P. Morgan Asset Management said it's time for the ECB to "abandon gradualism".
"...the euro zone’s growth backdrop is not good. The manufacturing sector in particular is facing well-known issues: high gas prices, tight financial conditions, relatively weak consumer demand, and Chinese competition."
"A forward-looking central bank should take note and accelerate the pace of easing," she said.
Markets are now pricing in a more than 80% chance of a 0.25% cut at the ECB's next meeting on December 12, and a marginal 17% chance of a bigger 0.5% cut - substantially down from last week.
Elsewhere, Michel Lowy, co-founder and CEO of investment Management SC Lowy which invests in credit, thinks the latest data could actually temper prospects for further easing in 2025.
"...Persistently elevated inflation could prompt the ECB to maintain or resume rate hikes, driving up borrowing costs. This, in turn, may lead banks to tighten lending criteria or scale back market activity to manage risk," he wrote.
Patrick O'Donnell, senior investment strategist at Omnis Investments, highlights last week's weak PMI data, and his view is in line with market expectations for a 0.25% cut in December.
"They may want to observe if there is any bounce back in the next round of survey data and of course if there are any policy initiatives announced from the incoming U.S. administration which may impact their forecasts," he said.
Harry Woolman, associate at Validus Risk Management says this has lifted the euro in recent weeks but believes any boost to the common currency will be short-lived.
"...the outlook for the continent remains tenuous, with French political uncertainty, geopolitical tensions and underwhelming economic performance proving to be key drivers of near-term sentiment," Woolman writes.
(Lucy Raitano)
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