The European Central Bank will announce its interest rate decision on Thursday, October 29 at 14:15. The market expects a pause, with the French debt spread at its highest level in fifteen years as a pressure factor.
According to euribor.com.es, the European Central Bank will communicate its interest rate decision on Thursday, October 29 at 14:15. The market discounts a pause that would keep the deposit facility at 2.50%, with an eye on a possible 25 basis point hike in December. The announcement comes with an uncomfortable factor for Christine Lagarde: the spread between French and German ten-year debt reached its highest level in fifteen years last week.
This week also concentrates the decisions of the Federal Reserve on Wednesday and the Bank of Japan. According to analysis from Unicredit, the ECB's decision would likely be unanimous, and the tightening of financial conditions due to the rise in long-term rates would have given the Governing Council room to wait for data.
Unicredit describes increasing energy pressure on overall inflation, stable core inflation, and moderate growth, with no clear signs of second-round effects through wages. BofA, on the other hand, is monitoring the tone of the communication: if Lagarde repeats the formula of a measured correction of rates, the market could interpret it as a cycle of increases between 75 and 100 basis points.
The main risk for the ECB is not the interest rate, but public debt. The premium that investors demand for buying French bonds over German ones rose last week to its highest level in fifteen years, fueling speculation about possible action in the French bond market. The central bank has tools for this, such as the Transmission Protection Instrument (TPI) and the PEPP program.
ABN Amro considers an intervention unlikely, as current tensions do not seem to threaten the transmission of monetary policy or significantly tighten liquidity conditions. According to their analysis, most of the movement responds to specific risks in France, and contagion would be limited. BofA points to a middle option: a soft verbal intervention that reminds of the existence of these tools and a possible temporary pause in the balance sheet reduction program if markets become unstable.
In the United States, consensus places the federal funds rate at 3.75%-4.00% after the 25 basis point hike in September, with no changes expected on Wednesday. The latest employment report disappointed with 29,000 non-farm jobs created in September, compared to the expected 90,000. ING does not interpret this weakness as a turning point and maintains that the economy is expanding dynamically while inflation remains above target.
In the eurozone, the year-on-year GDP growth expected for the third quarter is 1.0%, down from the previous 1.2%. The US GDP data will be published on Thursday, a day after the ECB meeting, with a consensus of 3.0% compared to 2.2% in the previous quarter. The opening data for the IBEX 35, the twelve-month Euribor, and the price of Brent were not available at the time of writing.
You may also like
