08 March 2024
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ECB keeps rates unchanged but signals cuts could come later this year

Daily Outlook - 08 March 2024

By Edward Bell

The European Central Bank kept interest rates unchanged at its March 7 meeting of the governing council. The ECB did lower its inflation forecast, expecting inflation to average 2.3% this year and 2% in 2025, down from 2.7% and 2.1% in its previous estimates. ECB president Christine Lagarde noted after the decision that the ECB was making “good progress towards our inflation target” but that they were not “sufficiently confident” and that the bank would “know a lot more in June.” Lagarde also confirmed that the ECB had begun discussing “dialing back of our restrictive stance.” Markets have interpreted the decision as an outline to begin cutting rates in June this year, pricing in more than 75% probability of cut with a total of 100bps of cuts priced in for the whole of 2024.

Fed chair Jerome Powell continued his testimony to Congress this week, speaking to the Senate Banking Committee, saying the Fed was “not far” from having the confidence to begin cutting rates. Powell said it would be appropriate to cut rates “at some point this year” but did not box himself in to a particular time frame.

German factory orders plummeted in January by 11.3% m/m, offsetting a 12% increase recorded in December. There were parallel drops in both domestic and foreign orders with a substantial decline in the electronics sector. There were consistent declines across most industrial sectors with only cars and car parts increasing m/m. Factory orders data is fairly noisy in Germany and a rolling three month average growth rate showed orders near unchanged in January.

Moody’s changed their rating outlook on Egypt to positive from negative and affirmed Egypt’s ‘Caa1’ rating. According to Moody’s, the move “reflects significant official and bilateral support” and the reform steps taken this week. Moody’s said that downside risks to covering Egypt’s external financing gaps had “significantly” reduced.

Saudi Arabia has transferred an additional 8% stake in Aramco to PIF-owned companies, leaving the direct government stake at 82.2%. According to Aramco, the change in stake “does not have an impact on the company’s operations, strategy, dividends distribution policy or governance framework.”

Today’s Economic Data and Events

  • 11:00 GE industrial production m/m Jan: forecast 0.6%
  • 14:00 EC GDP 4Q (f) y/y: forecast 0.1%
  • 17:30 US nonfarm payrolls Feb: forecast 200k
  • 17:30 US unemployment rate Feb: forecast 3.7%

Fixed Income

  • US Treasuries closed higher as markets parsed through Fed Chair Jerome Powell’s testimony to a senate banking committee, taking his comments that it would be “appropriate” to cut rates at some time this year as a positive signal. Yields on the 2yr UST dropped 5bps to 4.5014% while the 10yr yield dropped by about 2bps to 4.0827%.
  • Bond markets in Europe generally closed higher with the 10yr bund yield down by less than 2bps at 2.304% while gilt yields held steady at just under 4%.


  • The US dollar extended its slump for a fifth day with EURUSD up 0.5% at 1.0948 and GBPUSD climbing 0.6% to 1.2809. USDJPY had a substantial move lower, down 0.9% to 148.05 in favour of the yen.
  • Commodity currencies also pulled higher with USDCAD down 0.4% to 1.3459, AUDUSD up 0.9% at 0.662 and NZDUSD adding 0.7% to 0.6174.


  • Equity markets pulled higher overnight, helped by messages that central banks would likely begin cutting rates at some point later this year. The Dow added 0.3% while the S&P rallied more than 1% and the NASDAQ jumped 1.5%. European markets also had a strong day with the EuroStoxx index up 1.2% and the FTSE gaining 0.2%.
  • Asian markets have opened strongly today with the Nikkei up 0.8% and the Hang Seng adding 1%.
  • Local equity markets closed lower with the DFM down about 0.3% and the ADX marginally lower. The Tadawul managed a gain of 0.1%, however.


  • Oil prices drifted without a clear direction yesterday with Brent closing unchanged at USD 82.96/b, managing to move above USD 83/b in early trade today, while WTI dipped by 0.3% to USD 78.93/b while it too has moved higher in early trade on Friday.
  • Oil demand growth will move to a slower phase according to analysis from the China National Petroleum Corp.

Written By

Edward Bell Head of Market Economics

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