The ECB cut rates as expected by 25 basis points to 3.25% and gave a dovish message, while trying to maintain data-dependence. Also, a closer look at the upcoming US elections.
ECB – The Path to 50
The ECB cut rates as expected by 25 basis points to 3.25% and gave a dovish message, while trying to maintain data-dependence. Lagarde mostly described the risks to growth and inflation and tilted to the downside, and hesitated when talking about the pace of lowering rates ahead. This led markets to believe that cutting increments of 50 basis points were possible ahead, which are now pricing a probability of almost 50% for this to happen at the December meeting. This week’s PMIs are crucial, if they weaken again a 50 basis points cut may become a realistic scenario. However, if they bounce back stronger on China stimulus and central bank cuts, the ECB may stick to 25 basis points ahead.
US Elections – Markets voting Trump
Odds for a “red sweep” continue to improve on Polymarket, now at 43% up from just 30% early October. Media reports have questioned the validity of the Polymarket odds as they’re apparently driven by few large accounts, but markets are running with it for the time being. Stronger US data has helped US yields higher last week, as retail sales beat expectations and jobless claims fell from the prior weeks elevated hurricane levels. Global investors are travelling to the IMF meetings in Washington this week, and we expect plenty of headlines from policymakers and election-watchers to shape the narrative.
Algebris Investments’ Global Credit Team
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