ECB, Swiss will start cutting, but how much?

A look at the day ahead in European and international markets from Kevin Buckland

An important week for central banks around the world brings decisions from two of the biggest on Thursday: the European Central Bank and the Swiss National Bank.

Price cuts by both are not in question, but how deep the cuts will be is still up for debate.

Switzerland’s central bank decides first, and market-related risks are tipped to be cut in half to 0.5%, which has increased in recent weeks as President Martin Schlegel has called for a return to negative rates if necessary to dampen investor sentiment. safe franc.

At the ECB, a further reduction in the quarter is seen as a possible outcome, but the 15% risk of a halving shows that traders see it as an unnecessary risk. A similar trend for European central banks is a growing economy, although some hawkish officials say inflation was a concern due to wage growth and rising labor costs.

The possibility of higher US rates looming in January and escalating political problems in Germany and France – the heart of the euro zone – add further uncertainty.

Regardless of the ECB’s decision today, further reductions are undoubtedly coming: Markets will lower rates at each meeting until June, followed by another final cut in 2025.

Some of the euro’s key fundamentals are being watched by the market, including pre-Brexit levels against sterling and parity with the dollar for the first time since the end of 2022.

The United States released PPI figures later on Thursday, just a day after the expected and less-than-warm reading on consumer price inflation all but anchored market sentiment after the Federal Reserve’s December 18 rate cut.

The rally on Wall Street that followed the CPI figures, pushing the Nasdaq above 20,000 for the first time, has spread to Asia, which is doing well in the European sectors.

Meanwhile, the yuan stabilized on Thursday after the PBOC set a slightly tighter policy. It was under pressure the day before after a Reuters report that Beijing was considering a lower price to counter any US trade war.

Major events that will affect the markets on Thursday:

-SNB, ECB decisions

-Sweden, Ireland CPI (both Nov)

-US PPI (Nov)

(Writing by Kevin Buckland; Editing by Edmund Klamann)