ECB set to deepen global easing with surprise rate cut

The European Central Bank will probably advance the global push for monetary easing in the coming week with an interest-rate cut that policymakers had all but ruled out just a month ago.

The third quarter-point reduction of this cycle is seen likely by economists to herald a longer-lasting acceleration in action by officials seeking to cushion the euro zone from the hit to growth created by an extended period of high borrowing costs, and now playing out with a lag.

ECB President Christine Lagarde, at the press conference she’ll host after Thursday’s meeting near the Slovenian capital of Ljubljana, may be quizzed both on the path forward for further cuts, and on what materially changed from the September meeting.

With a smaller-than-usual gap of just five weeks between decisions, and not much new data available, officials appear to be abandoning recent caution about lingering inflation pressures in order to respond mainly to survey data pointing to a contraction in the private-sector economy.

Such reports have moved the needle for financial markets, and stoked momentum for a cut that’s widely anticipated after policymakers largely endorsed the change in bets.

The switch has been abrupt. At the Sept. 12 decision, officials almost excluded a cut in October. Days later, Slovakian central bank governor Peter Kazimir declared that “we will almost surely need to wait until December” for another move because “very little new information” would be available by Oct. 17.

He’s now the sole voice publicly arguing against a move on Thursday, although other hawks could potentially join him behind the scenes.

What Bloomberg Economics Says:

“The ECB will lower borrowing costs by 25 basis points in October and again in December. After that we see quarterly moves as policymakers feel their way to neutral.”

As for what happens next, economists now reckon the ECB will speed up its easing to bring borrowing costs down to a level that no longer constricts the economy by the end of 2025, according to a Bloomberg survey.

Elsewhere, Chinese data may show the economy continuing to underperform its target, other central banks from Southeast Asia to Chile will deliver rate decisions, and UK inflation may finally slow below 2%. The Nobel Prize in economics will be announced in Stockholm on Monday.

US and Canada

US reports will offer a sense of how much momentum consumers, manufacturers and homebuilders had approaching the final quarter of the year. Data out Thursday are forecast to show steady retail sales growth that underscores resilient consumer spending habits.

The Atlanta Fed’s GDPNow forecast currently sees a faster pace of personal consumption expenditures powering stronger economic growth in the third quarter.

At the same time, a Fed report on Thursday is expected to show an easing in factory output that illustrates a struggling manufacturing sector. And housing starts the following day will probably point to cooler residential construction.

The impact on September economic data from Hurricane Helene may be modest considering landfall occurred late in the month. However, Helene and Hurricane Milton are expected to skew October data.

Fed officials speaking in the coming week include Christopher Waller, Neel Kashkari and Mary Daly.

Turning north, the Bank of Canada will be watching for more cooling in core inflation in September’s data after the headline rate finally reached the 2% target in August.

However, a small upside surprise wouldn’t throw policymakers off their easing track, as they’ve said they expect some bumpiness on the path toward a sustainable return to the target.

Asia

China’s in the spotlight all week, culminating in growth figures Friday that are likely to show the economy is still expanding below the 5% target for the year.

That outcome would underscore why authorities undertook aggressive easing measures late last month, and presented another salvo of support on Saturday.

Beijing will publish a slew of monthly figures, including industrial output and retail sales for September, along with third-quarter gross domestic product data. Property investment probably fell at a double-digit clip for a fifth straight month.

The week kicked off with figures on Sunday that showed that China’s deflationary problems became more entrenched in September, with consumer prices still weak and factory gate prices continuing to fall.

Elsewhere, the Monetary Authority of Singapore issues its policy statement on Monday, while Southeast Asia gets a blast of central bank action on Wednesday.

In Manila, Bangko Sentral ng Pilipinas is forecast to cut its benchmark and standing overnight deposit facility rates by a quarter-point each, while the Bank of Thailand and Bank Indonesia may hold their policy settings steady.

Consumer prices in Japan for September are seen rising faster than the Bank of Japan’s target for a 27th straight month, and Australia gets labor statistics on Thursday that may reflect continued tightness.

Singapore’s growth probably picked up in the third quarter, according to the consensus estimate for data on Monday. Trade data are due from China, Japan, Indonesia, India, Singapore and Malaysia, and New Zealand is set to publish third-quarter consumer price figures.

Europe, Middle East, Africa

Aside from the ECB decision, the UK is likely to prove a key focus, with data on wages, inflation and retail sales all scheduled for release.

With Bank of England Governor Andrew Bailey having signaled he could be open to a more aggressive approach to easing, the numbers will offer a glimpse on whether the consumer-price backdrop has become benign enough to allow that.

Economists anticipate that the inflation data will show weakening in September to below the 2% target for the first time since April 2021.

In the euro zone, Germany’s ZEW survey of investors is released at a time the country’s government is coming to terms with its new forecast, acknowledging that Europe’s biggest economy will probably contract this year.

Fiscal affairs may draw attention in Italy, with a budget due by Tuesday evening in time for a European Union deadline. Both Fitch Ratings and S&P Global Ratings are scheduled for potential updates on Italy after the market close on Friday.

The region’s economic travails are likely to feature at a Brussels summit of EU leaders on Thursday and Friday, with competitiveness one of the topics on the agenda.

Looking south, in Israel on Tuesday, inflation, already above the official target of 1% to 3%, is expected to quicken further as the country engages in a multi-front conflict. Analysts predict the rate rose to 3.7% in September from 3.6% a month earlier.

In South Africa, the Reserve Bank will publish its biannual monetary policy review, providing guidance on the inflation and rate outlook. Governor Lesetja Kganyago will speak at the event.

Investors in Nigeria will watch to see if annual inflation continued to slow in September, even as price pressures built from higher fuel costs and devastating floods. Inflation is currently at 32.2%.

In Namibia, the central bank is set to lower its key interest rate, now at 7.5%, by 25 basis points on Wednesday in line with South Africa’s reduction last month. The Namibian dollar is pegged to the rand, which means monetary policy is often guided by the South African Reserve Bank’s actions.

In Turkey on Thursday, the central bank will likely hold its rate at 50% for a seventh straight meeting. Inflation has decelerated from 75% in May to 49% in September, but officials will want to see it drop further before they consider easing. Some analysts reckon policymakers will hold off on cuts until 2025.

In Egypt, the central bank is likely to hold its rate at 27.25% after data showing inflation quickened for a second straight month in September. Goldman Sachs is among the banks now predicting a delay to cuts in borrowing costs until early next year.

Latin America

At Chile’s rate meeting, cooler-than-expected inflation data likely sews up a quarter-point rate cut to 5.25%. That would bring the central bank’s easing cycle to 600 basis points, with another 75 bps of reductions likely by the end of 2025.

Among the other big Latin American central banks, easing in Peru has largely tracked expectations, while action in Brazil, Colombia and Mexico has proved far more modest than the consensus estimates of mid-2023.

In other central bank news, monetary authorities in Chile, Brazil and Colombia will all publish much-watched surveys of expectations. In addition to economists and analysts, Chile also conducts a survey of traders, on tap for Monday.

Unemployment in Peru’s capital inched up to 6.1% in August, and may have edged up again in the September reading due Tuesday, but is running near a post-pandemic low as the economy continues to add jobs.

Also Tuesday, Colombia posts August readings on industrial production, manufacturing production and retail sales. The July prints were all in the black, the first such sweep in 17 months.

GDP-proxy readings from Brazil, Colombia and Peru may show all three economies hitting headwinds in July after closing out the first half of the year on a high note.