Risk appetite was increased by overnight reports from China about the possibility of additional stimulus measures for the world’s second largest economy.
China’s central bank reduced interest rates and injected cash into the banking system today as Beijing launched a last-ditch stimulus campaign to return economic growth to this year’s objective of around 5%.
In the Eurozone, the ECB appears to be about to accelerate its rate-cutting program. Recent economic indicators, including as a gradually deteriorating PMI and expected negative growth in Germany, France, and Italy, suggest that the ECB’s bullish outlook on growth may be overstated.
ECB’s data dependent approach suggests that the central bank would stay flexible and change its policy stance in response to changing economic conditions.
It does not rule out a 50 basis point decrease in December 2024, or a faster rate of easing if economic data deteriorates severely.
Looking forward, today brings some significant survey data from the Eurozone, as the European Commission’s September economic confidence report is coming. The headline index is predicted to fall marginally, to 96.5 (from 96.6). However, considering the lower-than-expected PMI figures earlier in the week, there are negative risks to this estimate.
In the United States, the spotlight will be on the release of core-PCE (the Fed’s preferred inflation index) for August. Core inflation is expected to increase modestly to 2.7% from 2.6%.
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