ECB president Christine Lagarde
LONDON: The European Central Bank (ECB) will probably advance the global push for monetary easing this week with an interest-rate cut that policymakers had all but ruled out just a month ago.
The third quarter-point reduction of this cycle is seen likely by economists to herald a longer-lasting acceleration in action by officials seeking to cushion the eurozone from the hit to growth created by an extended period of high borrowing costs, and now playing out with a lag.
ECB president Christine Lagarde (pic), at the press conference she’ll host after this Thursday’s meeting near the Slovenian capital of Ljubljana, may be quizzed both on the path forward for further cuts, and on what materially changed from the September meeting.
With a smaller-than-usual gap of just five weeks between decisions, and not much new data available, officials appear to be abandoning recent caution about lingering inflation pressures in order to respond mainly to survey data pointing to a contraction in the private-sector economy.
Such reports have moved the needle for financial markets, and stoked momentum for a cut that’s widely anticipated after policymakers largely endorsed the change in bets.
The switch has been abrupt. At the Sept 12 decision, officials almost excluded a cut in October.
Days later, Slovakian central bank governor Peter Kazimir declared that “we will almost surely need to wait until December” for another move because “very little new information” would be available by Oct 17.
He’s now the sole voice publicly arguing against a move this Thursday, although other hawks could potentially join him behind the scenes.
“The ECB will lower borrowing costs by 25 basis points in October and again in December. After that we see quarterly moves as policymakers feel their way to neutral,” said senior eurozone economist David Powell.
As for what happens next, economists now reckon the ECB will speed up its easing to bring borrowing costs down to a level that no longer constricts the economy by the end of 2025, according to a Bloomberg survey.
Elsewhere, Chinese data may show the economy continuing to underperform its target, other central banks from South-East Asia to Chile will deliver rate decisions, and UK inflation may finally slow below 2%.
The Nobel Prize in economics will be announced in Stockholm today.
United States and Canada
US reports will offer a sense of how much momentum consumers, manufacturers and homebuilders had approaching the final quarter of the year.
Data out this Thursday are forecast to show steady retail sales growth that underscores resilient consumer spending habits.
The Atlanta Federal Reserve’s (Fed) GDPNow forecast currently sees a faster pace of personal consumption expenditures powering stronger economic growth in the third quarter.
At the same time, a Fed report on Thursday is expected to show an easing in factory output that illustrates a struggling manufacturing sector.
And housing starts the following day will probably point to cooler residential construction.
The impact on September economic data from Hurricane Helene may be modest considering landfall occurred late in the month.
However, Helene and Hurricane Milton are expected to skew October data.
Fed officials speaking in the coming week include Christopher Waller, Neel Kashkari and Mary Daly.
Turning north, the Bank of Canada will be watching for more cooling in core inflation in September’s data after the headline rate finally reached the 2% target in August.
However, a small upside surprise wouldn’t throw policymakers off their easing track, as they’ve said they expect some bumpiness on the path toward a sustainable return to the target.
Asia
China’s in the spotlight all week, culminating in growth figures this Friday that are likely to show the economy is still expanding below the 5% target for the year.
That outcome would underscore why authorities undertook aggressive easing measures late last month, and presented another salvo of support on Saturday.
Beijing will publish a slew of monthly figures, including industrial output and retail sales for September, along with third-quarter gross domestic product data.
Property investment probably fell at a double-digit clip for a fifth straight month.
The week kicks off with figures expected to show that China’s consumer inflation continued to limp along at an anemic 0.6% in September, while declines in factory-gate prices deepened.
Elsewhere, the Monetary Authority of Singapore issues its policy statement today, while South-East Asia gets a blast of central bank action on Wednesday.
In Manila, Bangko Sentral ng Pilipinas is forecast to cut its benchmark and standing overnight deposit facility rates by a quarter-point each, while the Bank of Thailand and Bank Indonesia may hold their policy settings steady.
Consumer prices in Japan for September are seen rising faster than the Bank of Japan’s target for a 27th straight month, and Australia gets labour statistics on Thursday that may reflect continued tightness.
Singapore’s growth probably picked up in the third quarter, according to the consensus estimate.
Trade data are due from China, Japan, Indonesia, India, Singapore and Malaysia, and New Zealand is set to publish third-quarter consumer price figures.
Europe, Middle East, Africa
Aside from the ECB decision, the United Kingdom is likely to prove a key focus, with data on wages, inflation and retail sales all scheduled for release.
With Bank of England governor Andrew Bailey having signalled he could be open to a more aggressive approach to easing, the numbers will offer a glimpse on whether the consumer-price backdrop has become benign enough to allow that.
Economists anticipate that the inflation data will show weakening in September to below the 2% target for the first time since April 2021.
In the eurozone, Germany’s ZEW survey of investors is released at a time the country’s government is coming to terms with its new forecast, acknowledging that Europe’s biggest economy will probably contract this year.
Fiscal affairs may draw attention in Italy, with a budget due by tomorrow evening in time for a European Union deadline.
Both Fitch Ratings and S&P Global Ratings are scheduled for potential updates on Italy after the market close this Friday. — Bloomberg
