ECB cuts deposit rate by 25bps

The European Central Bank cut the deposit rate by 25bps, in a move that had been widely anticipated by the markets. The cut marks the fourth reduction by the central bank since June and takes the deposit rate to 3.0%. The statement accompanying the ECB decision was widely interpreted as being a shift in tone, towards being less hawkish. The bank also released new forecasts, including downward revisions to growth in the bloc, with GDP growth in 2025 now expected to reach just 1.1% from a previous forecast of 1.3%.

US PPI rose 3.0% y/y in November, higher than both the upwardly revised 2.6% recorded in October and expectations. The Fed may nonetheless find some positive news in the print, with all the PPI components that feed into the PCE index fairly weak, strengthening the case for a rate cut next week. On a month-on-month basis PPI rose 0.4%.

US initial jobless claims jumped to 242k in the week ending December 7, up from the 225k recorded the week prior and well above consensus expectations for a 220k rise. While there are continued signs of a gradual softening in the US labour market, at least some of the upside surprise in initial claims is likely to be related to wildfire in California and seasonal factors around the Thanksgiving holiday. Continuing claims rose to 1.886m in the week ending 30 November, up from 1.871m.

Consumer price inflation in India moderated slightly in November, falling to 5.5% y/y from 6.21% in October. The easing in price pressures is likely to give the Reserve Bank of India more scope to cut rate in 2025, with the bank having kept rates unchanged for almost two years. Expectations of a rate cut have also been bolstered by the appointment of Sanjay Malhotra to position of Governor of the RBI, with the new governor expected to place a greater focus on growth.

Chinese officials have highlighted their intention to provide further fiscal stimulus, cut rates and reduce the reserve requirement for banks, at the conclusion of the two-day Central Economic Work Conference held in Beijing. This follows the pledges for further stimulus made at the Politburo meeting earlier in the week.

Today’s Economic Data and Events

• 11:00 UK Monthly GDP (Oct): Forecast 0.1% m/m
• 14:30 EC Industrial production (Oct): Forecast -2.0% y/y

Fixed Income

• Thursday marked the fourth consecutive day of falls in US Treasuries, driven by mixed US data. The 2yr yield gained 4bps to 4.1906% and the 10yr yield rose 6bps to 4.3278%.
• Yields on European bonds were generally higher on the day. The 10yr Bund gained 8bps to 2.203%, while the 10yr Gilt yield rose just under 5bps to reach 4.360%.

FX

• The dollar continued its run of strength on Thursday, with the spot index rising 0.23%. EURUSD fell 0.27% to 1.0468, GBPUSD declined 0.61% to 1.2673, and JPYUSD rose 0.12% to 152.63.
• The dollar was broadly stronger against commodity currencies. NZDUSD fell 0.26% to 0.577 and USDCAD gained 0.43% to 1.422. AUSUSD was unchanged at 0.6369.

Equities

• US equity markets fell on Thursday, with investors reacting to the higher-than-expected PPI print. The Dow Jones and the S&P 500 both fell 0.5%, while the NASDAQ declined by 0.66%.
• Most major European equity markets rose on the day, with the ECB cutting rates by 25bps and signaling further easing to come. The Eurostoxx 50 rose 0.12% and the DAX gained 0.13%. The CAC 40 was broadly unchanged, while the FTSE 100 rose 0.12%.
• Locally, the DFM gained 0.34%, while the ADX was flat. In Saudi Arabia the Tadawul index fell 0.41%.

Commodities

• Brent futures fell 0.15% to USD 73.41/b while WTI declined by 0.38% to reach USD 70.02/b. A monthly International Energy Agency (IEA) report suggested that oil markets would remain in surplus in 2025, even with the decision by OPEC+ to once again postpone the return of production to the market. The IEA suggested that the excess supply could be around 1.4 million barrels per day.