ECB Stick To The Script, UK GDP On Deck Today

WHERE WE STAND – Yesterday was, mercifully, the last ‘ECB Day’ of 2024; words cannot express how over-joyed I am not to have to listen to the perma-tanned one drone on again until January!

In any case, the ECB duly delivered the 25bp cut that I, and everyone else on the sell-side, had anticipated, while money markets had also already fully discounted such a move. There was a marginal dovish tweak to the accompanying policy statement, with the Governing Council having removed reference to policy being ‘sufficiently restrictive’, while the updated staff macroeconomic projections were a touch more pessimistic on growth, and a tad more optimistic on inflation, than those issued a quarter ago. It was also noteworthy that policymakers did indeed discuss the potential for a 50bp cut this time around, though ultimately decided not to pull the trigger on such a ‘jumbo’ move, with later sources reports reinforcing Lagarde’s press conference comments.

The December meeting, then, will not go down in the history books, nor will it go down as a gamechanger for the EUR, which traded flat as Lagarde waffled on. We still await, then, the point at which markets reach ‘peak pessimism’, which still seems some way off, even if a considerable degree of bad news is already priced into the common currency. Still, I stand by my view that we see EUR/USD print 1.10 before we print parity.

Sticking with policy decisions, we also heard from the SNB yesterday, who delivered a larger-than-expected 50bp cut, halving the benchmark rate to 0.50%, while also reiterating a pledge to intervene in the FX market as policymakers deem necessary. Policymakers also kept the door open to a return to the illogical and ineffective policy of negative interest rates, cementing the SNB’s place as the most dovish of all G10 central banks. The Swissie was predictably softer in reaction, with the currency having little by way of a convincing bull case, save for haven demand – though the JPY, or even gold, are probably a better bet in that regard.

More broadly, it was a typical ‘Christmas markets’ day on offer yesterday, with most assets meandering along with little by way of a fundamental driver.

Treasuries, though, were softer across the curve, with benchmark 10- and 30-year yields rising by more than 5bp apiece; firstly, as a result of hotter-than-expected PPI figures (3.0% YoY vs. 2.6% exp.), then after a soft 30-year auction, which tailed the WI yield by a chunky 1.3bp. That said, a 10-year north of 4.30%, and an FOMC seeking to return to neutral sooner rather than later, presents a decent buying opportunity, in my view.

Stocks also remain a buy on dips, with both the S&P 500 and Nasdaq losing marginal ground yesterday. I’d note, though, that we will probably see conviction wane somewhat in the dip buying hypothesis as we inch closer towards Christmas. In fact, given the number of festive events I’ve attended over the last two weeks, it feels like we might’ve overdone Christmas already – bah, humbug!

LOOK AHEAD – Friday the 13^th – unlucky for some, perhaps; though hopefully not any of my readers!

Said readers will, I’m sure, be content to learn that today’s data docket presents little by way of significant events, as we drift towards the weekend.

This morning’s UK GDP figures highlight the docket, with consensus seeing the economy having grown by 0.1% MoM in October, compared to the 0.1% contraction seen in September. While, in the grand scheme of things, we’re talking about rounding errors here, I’d imagine that risks to consensus are tilted to the downside, given the huge degree of pre-Budget uncertainty present during the reference month.

Besides that, the data docket is barren. I shan’t use the ‘Q’ word, at risk of tempting fate, though hopefully a subdued day awaits. Keep an eye out for a barrage of ECB speakers, though, given policymakers’ tendency to all want to share their ‘two penneth worth’ the day after a policy announcement.