A Fed rate cut next week is only a given now after the US CPI report here. But before we get to that, the central bank bonanza will make a couple of stops in Europe after the Bank of Canada decision yesterday The SNB and the ECB are the two main events to watch in the coming day.
Both central banks are expected to cut rates further before the end of the year. However, one decision will not be as simple as the other.
On paper, the SNB and ECB are expected to cut rates by 25 bps today. But in terms of market prices, traders associate ~58% probability of a 50 bps rate cut for the SNB with ~42% odds of a 25 bps move. As for the ECB's decision, it should play out as expected and that is a 25 bps rate cut. That's considering markets pricing in ~85% of that with the rest tied to a 50 bps move.
If the SNB moves by 50 bps today, that will bring the policy rate to 0.50%. In fact, it leaves little room to work with as the economy weakens heading into next year. So, they might think twice about that. But then again, the central bank may be forced into this to prevent a knee-jerk strengthening of the Swiss franc currency. So, there is a balance that needs to be struck.
As far as the ECB is concerned, the disinflation path is facing a few bumps along the way. However, the euro area economy is in a very rough position to end the year and the outlook for next year is not that much better. The threat of Trump's tariffs is also a key consideration along with increased political uncertainty in two of the region's largest economies.
Considering their recent communication and the balance of risks from the data, today's 25 bps move fits the ECB's path with more rate cuts to come next year.
0830 GMT – SNB announces its December monetary policy decision
1315 GMT – ECB announces its December monetary policy decision
1345 GMT – ECB president Lagarde's press conference
That's all for the next session. I wish you a great day ahead and good luck with your business! Stay safe out there.
