MFS: More ECB rate cuts as growth outlook remains weak

16 oktober 2024

Rente ECB

Peter Goves, Head of Developed Market Debt Sovereign Research at asset manager MFS on the ECB meeting tomorrow:

'We have high conviction the ECB will cut its policy rate by 25bp from 3.50% to 3.25% next week. This is based on further deterioration in the euro area growth data and outlook but also by ECB rhetoric.

As well as details in the details in the latest ECB minutes, Lagarde noted at a recent speech to the European Parliament, that she had increased confidence that inflation will reach target and she would 'take this confidence to the October meeting'.

Enough said. We expect no change in guidance. It is highly likely that downside risks to the growth outlook will be further acknowledged

Our view remains that the weak growth outlook (with activity below potential for many quarters ahead) and falling inflation will mean more cuts remain on the table. Activity in Germany is particularly acute and something the ECB can ill afford to ignore. The recent back-up in yields has seen 10yr Bunds move around 20bp higher having started the year around 2.00%.

We see much of this move being associated with moves in USTs with asymmetric risks of lower, not higher, yields medium (and even near) term. The economic configuration and direction of travel of an emboldened ECB is not consistent with a bear market in core rates in our view. Looking ahead, back to back cuts cannot be ruled out and we pencil in a terminal rate at or just below neutral.'