Macro: Sandcastle economics
Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.
What: ECB Rate Decision
When: Rate decision and press release on Thursday, 12 September at 12:15 GMT (14:15 CET) and post-meeting press conference at 13:00 GMT (15:00 CET)
Expectation: A 25-basis point rate cut is anticipated, but don’t expect any clear forward guidance beyond that. The ECB is expected to remain data-dependent, closely monitoring services inflation and wages. While bond markets are pricing in a 63bps reduction by year-end, with additional cuts at each meeting through the first half of 2025, this outlook appears overly optimistic. A more likely scenario would be gradual rate cuts every quarter, as persistent core inflation pressures will likely prevent the ECB from adopting a more aggressive rate-cutting approach.
How will the market likely react? A 25bps rate cut is expected and largely priced in, so there may be limited immediate impact. However, with no clear forward guidance and the ECB remaining data-dependent, bond markets could see a pullback if expectations for aggressive rate cuts (65bps by year-end) are seen as overly optimistic following Christine Lagarde’s press release. Equity markets may remain subdued, particularly in sectors sensitive to interest rates, while downward revisions to growth forecasts could also dampen risk appetite. Overall, market volatility may persist as investors adjust to the reality of gradual, data-driven rate cuts. Read Althea Spinozzi’s, Saxo’s Head of Fixed Income Strategy, ECB preview for more insights.
The table below shows our views ahead of the September ECB meeting.
Why does it matter? The ECB meeting holds significant weight for markets as it shapes monetary policy, directly affecting interest rates and investor sentiment. Decisions made during these meetings influence economic expectations and drive asset prices across the euro area. With global central banks becoming less synchronized in their monetary policies, the ECB's actions are now more critical than ever for the forex market, making its rate decisions increasingly pivotal for market direction.
As the chart below illustrates, the market expects the ECB deposit rate to drop to 2% by July 2025, suggesting a rate cut in December, followed by additional cuts at each meeting from January 2025 through July 2025. If these expectations are not met, or if they are exceeded, volatility is likely to surge across asset classes.
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)