EUROPEAN SESSION:
In the European session, the main highlights will be the BoE and ECB monetary policy decisions. The Bank of England (BoE) is widely expected to cut by 25 bps bringing the Bank Rate to 3.75% vs 4.00% prior.
There’s a strong consensus that the vote split will be 5-4 in favour of the rate cut, with Governor Bailey joining the dovish camp this time around. The focus will be on potential dovish surprises in the vote split or forward guidance. No press conference at this meeting.
The European Central Bank (ECB) is expected to keep the policy rate unchanged at 2.00%. At this meeting we will get the updated economic projections where an upgrade to growth and inflation forecasts is expected. The central bank is unlikely to deviate from its recent forward guidance, that is a data-dependent approach with meeting-by-meeting decisions and no predetermined rate path.
AMERICAN SESSION:
In the American session, we get the most recent US CPI report. Headline CPI Y/Y is expected at 3.1% vs 3.0% prior, while the M/M measure is seen at 0.3% vs 0.3% prior. The Core CPI Y/Y is expected at 3.0% vs 3.0% prior, while the M/M figure is seen at 0.3% vs 0.2% prior.
There’s some kind of consensus that this report might have the same messy market reaction as the recent NFP report due to the problems related to the October shutdown. I think the market is more likely to focus on how the data is going to influence the hawkish camp of the Fed.
The recent 4.6% unemployment rate has overshot the Fed’s projected end of year rate of 4.5%. Given the Fed’s focus on the labour market, that is already a stronger signal for an earlier than expected rate cut, in my opinion. Inflation, on the other hand, has been consistently undershooting Fed’s projections. For 2025, they expect the Core PCE to be 3.0%.
Therefore, I would expect the market to lean more dovish in case today’s CPI meets expectations or better yet, surprises to the downside. In fact, the market might think that softer data is likely to positively influence the hawkish Fed members and make it easier to vote for a rate cut sooner than expected
