You can be forgiven for overlooking the ECB policy decision later today as the main event for markets will come in North America trading with the US CPI report due. Both events won’t be too far apart though with the ECB set to announce their decision at 1215 GMT before the US inflation numbers come about at 1230 GMT.
But until we get to that, it’s going to be a rather pensive and tentative session in European morning trade.
The ECB isn’t going to be cutting key interest rates today and president Lagarde should reaffirm most of the same communique that we’ve already heard since the start of summer. As things stand, traders are pricing in just ~6 bps of rate cuts by year-end for the ECB – which is essentially a nothing burger.
Lagarde might acknowledge “better” developments on trade amid a deal between the EU and US. However, the economic outlook remains tepid and inflation might still pose a threat in the months ahead. So, don’t expect her to pre-commit to anything and if she plays her cards right then the ECB event today will be rather muted.
As for the US CPI report, that is where markets will look to in order to reaffirm Fed rate cut odds for next week. We’ve already gotten confirmation of softer jobs data in the past week but that’s still not enough to push the narrative of a 50 bps rate cut. If there is a lack of evidence of tariffs passthrough on prices today, will traders feel more compelled to corner the Fed into such a decision? That is one possibility to look out for, especially since the Fed will have to rely on “leaks” now to respond.
However, what happens if there is strong evidence that tariffs are starting to have a real impact on inflation? Economists have been arguing that tariffs passthrough will be more evident over the next few months
