Traders question case for rapid ECB rate cuts
Repeats story that ran on Thursday, with no changes
ECB delivers first rate cut in five years
But markets question scope for further moves
Contrasts with renewed rise in Fed rate cut bets
By Yoruk Bahceli and Naomi Rovnick
LONDON, June 6 (Reuters) -Traders scaled back bets that the ECB would cut interest rates twice more this year, and outpace peers in easing policy, after the euro zone central bank gave little hint on Thursday of further moves.
The European Central Bank lowered its key rate by 25 basis points (bps) from a record high to 3.75% at its policy meeting on Thursday, its first cut in five years. However, it raised its inflation forecasts and President Christine Lagarde declined at a press conference to confirm it had entered a phase of 'dialling back' its restrictive monetary policy.
That led traders to price in just 36 bps of further rate cuts this year -- meaning another cut and less than a 50% chance of a third to follow, compared with over a 60% chance earlier on Thursday. EUESTECBF=ICAP
When the ECB last met in April, traders were much more certain on a third cut.
The odds of a second cut by September fell to less than 70% from nearly 80% before Thursday's decision.
"If we'd had more visibility about the cutting cycle it would have been perceived more positively but there is still uncertainty," said Sabrina Kanniche, senior economist at Pictet Asset Management.
"Lagarde did not want to commit on the future path ahead," Kanniche said.
SHIFTING DIVERGENCE
The bank's hawkish tone added fuel to a shift in the economic divergence theme, with receding ECB rate cut bets contrasting with a renewed increase in U.S. rate cut expectations.
Earlier this year, the U.S. economy's stronger performance against the euro zone had driven investor preference for the bloc's debt and hurt the euro.
Since then, the bloc's economy grew more than expected during the first quarter after a recession late last year. The United States in contrast grew at less than half the rate it posted in the fourth quarter.
While traders have become less convinced on the scope for ECB rate cuts, they have increased bets on Federal Reserve easing, now expecting nearly 50 bps, or two cuts, this year, up from less than 35 bps a week ago. FEDWATCH
The odds of a September Fed cut are now seen higher than one from the ECB.
"What we may now be seeing, if the data turns a little bit more in the U.S. and the Fed can go ahead with a cut in September, that may be the saving grace for the ECB (to cut in) September," said Soeren Radde, head of European economic research at hedge fund Point72.
That shifting outlook means government bonds in the euro zone will continue to lag, after they underperformed U.S. Treasuries for the first time since January last month, losing 0.2% .MEREG00, while U.S. Treasuries gained 1.5% .MERG0Q0.
Euro zone bonds have lost investors 1.2% year-to-date, double the 0.6% loss on U.S. Treasuries.
"The potential return you have from when you buy core and semi-core euro zone sovereign bonds is limited.Many investors have been reluctant to go in and buy," said Camille de Courcel, head of G10 rates strategy for Europe at BNP Paribas.
And in June so far, Germany's 10-year yield DE10YT=RR, the euro area benchmark, has dropped 10 basis points, half the 20 bps drop in U.S. peers US10YT=RR. Bond yields move inversely with prices.
Roman Gaiser, head of fixed income for EMEA at Columbia Threadneedle, said he did not see gains ahead for euro zone government debt.
"We're not piling in," he added.
Prospects for fewer ECB cuts is better news for the euro EUR=EBS. It edged higher on Thursday to $1.0883, adding to its roughly 2% rally from a five-month low hit in mid-April.
JPMorgan Private Bank's head of global FX strategy Samuel Zief sees a fair value of around $1.10 -- implying another 1% of gains.
The euro zone's improving economic performance means European stocks .STOXX are also seen gaining. While underperforming U.S. peers, they have rallied over 9% this year and touched record highs earlier on Thursday.
European equities are "the main overweight we have in our global equity funds," said Kevin Thozet, investment committee member at asset manager Carmignac, adding the euro zone economy is in a "sweet spot".
Still, the shadow of the U.S. economy and Fed policy loom large over global markets, and that's no different for the euro zone.
Point72's Radde said he would have expected a further scaling back of traders' ECB rate cut expectations after Thursday's policy meeting had it not been for a softening U.S. economy.
"Lagarde was striving to argue (on Thursday) why they are not committing a policy mistake in cutting rates today," Radde said.
"That should have elicited quite a strong reappraisal of the rate outlook, and the fact that it didn't means there's a strong overlay from outside the euro area."
The ECB and Canada join the slow crawl to cut rates https://reut.rs/4aSEnt0
Euro zone inflation and ECB interest rates https://reut.rs/3RbKa5V
Reporting by Yoruk Bahceli and Naomi Rovnick, additional reporting by Dhara Ranasinghe; editing by Dhara Ranasinghe and Susan Fenton
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دستبرداری: XM Group کے ادارے ہماری آن لائن تجارت کی سہولت تک صرف عملدرآمد کی خدمت اور رسائی مہیا کرتے ہیں، کسی شخص کو ویب سائٹ پر یا اس کے ذریعے دستیاب کانٹینٹ کو دیکھنے اور/یا استعمال کرنے کی اجازت دیتا ہے، اس پر تبدیل یا توسیع کا ارادہ نہیں ہے ، اور نہ ہی یہ تبدیل ہوتا ہے یا اس پر وسعت کریں۔ اس طرح کی رسائی اور استعمال ہمیشہ مشروط ہوتا ہے: (i) شرائط و ضوابط؛ (ii) خطرہ انتباہات؛ اور (iii) مکمل دستبرداری۔ لہذا اس طرح کے مواد کو عام معلومات سے زیادہ کے طور پر فراہم کیا جاتا ہے۔ خاص طور پر، براہ کرم آگاہ رہیں کہ ہماری آن لائن تجارت کی سہولت کے مندرجات نہ تو کوئی درخواست ہے، اور نہ ہی فنانشل مارکیٹ میں کوئی لین دین داخل کرنے کی پیش کش ہے۔ کسی بھی فنانشل مارکیٹ میں تجارت میں آپ کے سرمائے کے لئے ایک خاص سطح کا خطرہ ہوتا ہے۔
ہماری آن لائن تجارتی سہولت پر شائع ہونے والے تمام مٹیریل کا مقصد صرف تعلیمی/معلوماتی مقاصد کے لئے ہے، اور اس میں شامل نہیں ہے — اور نہ ہی اسے فنانشل، سرمایہ کاری ٹیکس یا تجارتی مشورے اور سفارشات؛ یا ہماری تجارتی قیمتوں کا ریکارڈ؛ یا کسی بھی فنانشل انسٹرومنٹ میں لین دین کی پیشکش؛ یا اسکے لئے مانگ؛ یا غیر متنازعہ مالی تشہیرات پر مشتمل سمجھا جانا چاہئے۔
کوئی تھرڈ پارٹی کانٹینٹ، نیز XM کے ذریعہ تیار کردہ کانٹینٹ، جیسے: راۓ، خبریں، تحقیق، تجزیہ، قیمتیں اور دیگر معلومات یا اس ویب سائٹ پر مشتمل تھرڈ پارٹی کے سائٹس کے لنکس کو "جیسے ہے" کی بنیاد پر فراہم کیا جاتا ہے، عام مارکیٹ کی تفسیر کے طور پر، اور سرمایہ کاری کے مشورے کو تشکیل نہ دیں۔ اس حد تک کہ کسی بھی کانٹینٹ کو سرمایہ کاری کی تحقیقات کے طور پر سمجھا جاتا ہے، آپ کو نوٹ کرنا اور قبول کرنا ہوگا کہ یہ کانٹینٹ سرمایہ کاری کی تحقیق کی آزادی کو فروغ دینے کے لئے ڈیزائن کردہ قانونی تقاضوں کے مطابق نہیں ہے اور تیار نہیں کیا گیا ہے، اسی طرح، اس پر غور کیا جائے گا بطور متعلقہ قوانین اور ضوابط کے تحت مارکیٹنگ مواصلات۔ براہ کرم یقینی بنائیں کہ آپ غیر آزاد سرمایہ کاری سے متعلق ہماری اطلاع کو پڑھ اور سمجھ چکے ہیں۔ مذکورہ بالا معلومات کے بارے میں تحقیق اور رسک وارننگ ، جس تک رسائی یہاں حاصل کی جا سکتی ہے۔
