ECB Likely to Cut Rates – China Rally Falters
ECB policymaker Villeroy told a French radio station the ECB is likely to cut rates next week, and probably not the last one of the cycle.
ECB policymaker Villeroy told a French radio station the ECB is likely to cut rates next week, and probably not the last one of the cycle.
Villeroy is head of the French central bank, in a radio interview stated, “A cut is very likely, and it will not be the last one, the rhythm depending on how the fight against inflation evolves.” Adding that weak economic growth justified the decision.
Markets have already priced in the next rate cut and adding bets to another rate cut in December. However, sentiments that the cuts will come in time to create a soft landing are dwindling.
The DAX is down 0.25% on the day and CAC is down 0.16%. Eurozone GDP Growth has progressively weakened since Q1 2022. In particular German GDP annual growth has turned negative in Q3 2023.
The latest forecasts are for a contraction in Europe’s largest economy for 2024. While France and Italy are showing signs of moderate economic expansion, industrial woes in the auto industry are raising concerns.
China Rally Deflates
The China stimulus package announced last Wednesday September 25, gave stock markets renewed hope. Economic recovery in China, currently Germany’s second largest trading partner, was seen as way to increase exports.
One of the sectors worst hit from China’s flagging demand has been the autos. With Volkswagen announcing the closure of 2 plants in Germany and BMW and Mercedes cutting profit forecasts. The stimulus news gave the markets some reprise, but it has been short lived.
The rally in the Shanghai index, which took the market to a new all-time high, has now seen the index lose over 10% yesterday and another 7.6% so far today.
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