The Fed will likely cut rates by 25 basis points to 4.5% this week, as recent economic data has been insufficient to stall it. Also, a look at the ECB.
US – Green Light for December
The Fed will likely cut rates by 25 basis points to 4.5% this week, as recent economic data has been insufficient to stall it. The unemployment rate rose to 4.2%, still below September projections, and last week’s inflation numbers translate to roughly 0.2% core PCE inflation, which annualises to around 2.4%. Rent inflation fell to only 0.2% MoM, a decline that has been expected for long. As the Fed cuts rates, the outlook for 2025 will be much more difficult. Following Trump’s election in 2016, the Fed reacted with more hawkish projections as they included risks for higher fiscal spending. This probably happens now again, and projections for 2025 cuts will likely be trimmed by one-two cuts, from previously four.
ECB – Disappointing the Doves
The ECB cut rates by 25 basis points to 3%, as expected but surprised investors with a slightly more hawkish message. Lagarde declined to discuss neutral rates, described the executed 100 basis points of cuts as a lot and emphasized domestic inflation still running high. There were some committee members initially favouring a 50 basis point cut, but the ECB then unanimously agreed on 25 basis points and later sources articles confirmed a likely path of 25s ahead. Cut expectations were trimmed afterwards, but the next three meetings still price cumulatively 90 basis points, more than three times 25 basis points. Today’s PMIs are expected to be largely unchanged, following the large drop in sentiment last month after Trump’s election.
Algebris Investments’ Global Credit Team
This document is issued by Algebris (UK) Limited. The information contained herein may not be reproduced, distributed or published by any recipient for any purpose without the prior written consent of Algebris (UK) Limited.
Algebris (UK) Limited is authorised and Regulated in the UK by the Financial Conduct Authority. The information and opinions contained in this document are for background purposes only, do not purport to be full or complete and do not constitute investment advice. Under no circumstances should any part of this document be construed as an offering or solicitation of any offer of any fund managed by Algebris (UK) Limited. Any investment in the products referred to in this document should only be made on the basis of the relevant prospectus. This information does not constitute Investment Research, nor a Research Recommendation. Algebris (UK) Limited is not hereby arranging or agreeing to arrange any transaction in any investment whatsoever or otherwise undertaking any activity requiring authorisation under the Financial Services and Markets Act 2000.
No reliance may be placed for any purpose on the information and opinions contained in this document or their accuracy or completeness. No representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information or opinions contained in this document by any of Algebris (UK) Limited , its members, employees or affiliates and no liability is accepted by such persons for the accuracy or completeness of any such information or opinions.
The distribution of this document may be restricted in certain jurisdictions. The above information is for general guidance only, and it is the responsibility of any person or persons in possession of this document to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. This document is for private circulation to professional investors only.
© 2024 Algebris (UK) Limited. All Rights Reserved. 4th Floor, 1 St James’s Market, SW1Y 4AH.
