ECB’s 25‑BP Cut Rocks the Market on a Slightly Hazy Day
Quick Friday Wrap‑up
- The European Central Bank (ECB) chopped its deposit rate by 25 bps yesterday.
- U.S. economic data disappointed a little, but Apple nails Q4 earnings ahead of schedule.
- Calendar stays busy as we close out the week.
What’s Happening?
Yesterday was a lean day for trading. Most investors took the news in stride. The ECB’s latest move was the expected fifth cut in this cycle. Market participants had already factored it in, so it didn’t send the markets into a frenzy.
The ECB’s policy tone remains “restrictive.” President Lagarde stayed clear that it’s too soon to decide when to stop easing. My forecast? Another 25 bps cut at the March meeting, with a steady pace until the deposit rate nears a neutral 2 %. Later this year, it could shrink to 2 % or below if growth falters.
Even with the expected cuts, the EUR‑OIS curve already discounts about 55 bps of further easing in 2024. So, a steep decline in the euro seems unlikely on a dovish ECB track.
U.S. Data Highlights
The latest U.S. report offered a mixed bag:
- GDP grew 2.3 % (annualised QoQ) in Q4 2024—below the 2.7 % consensus but still solid.
- Consumption jumped 4.2 % on the quarter.
- Jobless claims fell to 207 k for initial claims, a 4‑week low.
- Continuing claims were 1.858 m, below expectations.
These numbers softened the U.S. dollar a bit, while equities stayed upbeat, buoyed by the “U.S. exceptionalism” narrative. The Fed’s “put”—the idea that the Fed might cut rates if needed—now sits at a lower strike price compared to last year.
Apple’s Performance
Apple outshined expectations on both top and bottom lines. However, worries linger about its performance in China—a market that’s still struggling to recover.
Gold’s Glowing Edge
Gold shot to new record highs, eclipsing last October’s peak. Bulls remain in the game thanks to EM central bank flows and the persistent haven demand amid political and geopolitical jitters.
What’s Next – Calendar Highlights
Looking ahead because the weekend’s approaching:
- U.S.
- December PCE inflation figures are up next.
- Core PCE expected to climb 2.8 % YoY in 2024.
- Check out Q4 employment cost index and January Chicago PMI.
- Europe
- German flash CPI data might turn heads.
- Eurozone inflation expected early next week.
- Canada & Mexico
- There’s a looming 25 % tariff threat on their imports.
- If enacted, expect significant CAD and MXN declines on Monday’s market open.
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