European equities poised for growth
European equities began the new week on a strong note as traders positioned themselves ahead of an expected European Central Bank (ECB) interest rate cut and crucial employment and inflation data in the United Kingdom (UK).
In the UK, the rally in the FTSE 100 gained momentum during afternoon trading, recovering from last week’s decline. Markets weighed the latest corporate and political developments amidst economic uncertainty.
Investor sentiment and market outlook
Investor sentiment improved following Prime Minister Starmer’s comments that concerns about a capital gains tax hike were overdone.
Future gains for the FTSE 100 will depend on employment data, which is due tonight, and the September consumer price index (CPI), due on Wednesday. Currently, expectations are for the unemployment rate to remain stable at 4.1%. Core inflation is anticipated to rise by 3.4% year-on-year (YoY) in September, down from 3.6% the previous month.
European Central Bank rate expectations
Elsewhere in Europe, investors are well set for a third ECB rate cut this week, with the DAX 40 reaching a fresh record high overnight. As a 25 basis points (bp) rate cut is already factored in, attention will pivot to ECB President Christine Lagarde’s guidance on future rate adjustments.
ECB interest rate decision
Date: Thursday, 17 October 11.15pm AEDT
In its meeting last September, the ECB continued to lower rates, implementing a 25 bp cut to its key deposit rate facility, bringing it to 3.5%. This move was anticipated, following a similar action in June after a hold in July. ECB President Lagarde indicated a continuation of the ECB’s data-dependent and “meeting by meeting” approach, tempering expectations of another cut at the upcoming meeting in October.
However, recent weak growth data and strong disinflationary momentum underscored the need for further monetary policy easing. The Euro Area (EA) rates market is pricing in a 100% chance of a 25 bp ECB rate cut at next week’s meeting. Another 25 bp cut is expected for the ECB’s December meeting, which would see the deposit rate close the year at 3%.
