Could Europe lead global rate cutting in 2024?

Could Europe lead global rate cutting in 2024?
Investors are betting that the ECB may be an early mover.
DEC 06, 2023
By  Bloomberg

Investors are betting that Europe will lead the world’s largest central banks on interest-rate cuts after one of the region’s most hawkish policymakers described a slowdown in inflation as “encouraging.”

Markets are fully pricing six quarter-point rate cuts by the European Central Bank in 2024 for the first time, a move that would take the key rate down 150 basis points to 2.5%. There’s also an almost 90% chance of the easing cycle starting in the first quarter of next year, a scenario that was barely contemplated just three weeks ago. 

While markets worldwide are betting on more rate cuts, that view gained extra traction in Europe on Tuesday after Isabel Schnabel, a renowned ECB hawk, said inflation is showing a “remarkable” slowdown and that another hike in borrowing costs is “rather unlikely.” Markets have long dismissed chances of further tightening, but Schnabel had been cautioning that it was too early to rule out more hikes.

If traders are right, the ECB will be the first among major central banks to cut rates next year, and will deliver the most aggressive easing cycle. Still, some of Wall Street’s biggest names are already cautioning that expectations for cuts by central banks around the world are starting to look extended. 

The Federal Reserve is expected to deliver its first move in May and lower rates by 125 basis points. In the UK, markets are currently pricing three Bank of England quarter-point cuts starting in June, and a 40% chance of a fourth move. A month ago, just two cuts were priced.

Rates markets in Australia have switched from betting on another hike by mid-2024 to pricing in a better than 75% chance for a cut by then. And even New Zealand’s central bank — which last week said it may need to hike rates next year — is now seen as a strong chance to reduce its benchmark by May.

The view that major central banks will have to ease monetary conditions to support their economies next year has boosted bonds, making November a month for the record books. The yields on 10-year US and German bonds are down more than 45 basis points over the past month. The equivalent rate on gilts is down more than 30 basis points.

Schnabel’s remarks came just days after a report showed euro-area inflation slowed to 2.4%, far lower than economists had anticipated and approaching the ECB’s 2% target. 

While effectively ruling out another rate hike, Schnabel said in reference to potential cuts that “we should be careful in making statements about something that is going to happen in six months’ time.” Her colleagues Boris Vujcic ruled them out in the near future, while Francois Villeroy de Galhau said the ECB would examine the question at some point during 2024. 

That caution is also gaining traction on Wall Street, with strategists at BlackRock Inc. saying Tuesday that they “see the risk of these hopes being disappointed.” Goldman Sachs Group Inc.’s strategists are meanwhile recommending options bets to counter excessive rates pricing, and Allianz SE Chief Economic Adviser Mohamed El-Erian warned the Fed is losing control of its messaging.

“I do believe the Fed is done raising rates, but I don’t think that validates what is in the markets about rate cuts next year,” El-Erian said to Bloomberg Radio on Tuesday. 

Latest News

Osaic snaps up $13.5B CW Advisors
Osaic snaps up $13.5B CW Advisors

The deal for the Audax-backed RIA based in Boston gives Osaic a strategic foothold to attract more advisors and clients across the wealth spectrum.

Senate wants changes to Trump’s tax bill; here’s what’s expected
Senate wants changes to Trump’s tax bill; here’s what’s expected

‘Revenge tax’ on foreign investors could be scrapped in new version.

CFTC’s regulatory pioneer Bagley dies aged 96
CFTC’s regulatory pioneer Bagley dies aged 96

Veteran legislator helped set the standard for derivatives regulation.

Getting your head round AI when compliance is a big concern
Getting your head round AI when compliance is a big concern

As industry edges closer to the technology, an expert explains the options.

Advisor headcount down at Bank of America, Osaic and UBS so far in 2025, Wolfe Research analyst says
Advisor headcount down at Bank of America, Osaic and UBS so far in 2025, Wolfe Research analyst says

Counting advisor moves in and out of firms requires some art as well as science.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.

SPONSORED Beyond the dashboard: Making wealth tech human

How intelliflo aims to solve advisors' top tech headaches—without sacrificing the personal touch clients crave