The ECB will keep its policy rates unchanged today
Markets
The tech-heavy Nasdaq underperformed yesterday (-1.8%) with AI-heavyweights ceding more ground. Their lofty valuations have been topic of debate the past couple of weeks. Yesterday’s hiccup came after Blue Owl Capital withdrew from financing (the equity part) a data center involving Oracle. While this doesn’t derail the project, some interpreted it as a sign to take some more chips off the table. Both the Nasdaq and the S&P 500 are now in the final innings of completing a technical head-and-shoulders formation (September-December) with necklines around respectively 6500 and 22 000. Losing those would set the stage for a technical acceleration of the current correction.
The ECB will keep its policy rates unchanged today. Updated GDP projections are expected to show upward revisions for this year and next as flagged by several ECB members. 2027 inflation forecasts will see a downward shift because of the delay in the implementation of the Emissions Trading System (2) but this could be compensated for in the first view on inflation for 2028. We expect ECB President Lagarde to keep a neutral line, calling for interest rate stability in months to come. We don’t think that she will echo ECB Schnabel’s suggestion that the next ECB move will be a rate hike. It’s in the central bank’s interest to make today’s gather as much as possible a non-events. We don’t expect it to trigger any directional market moves. EUR/USD is going nowhere at 1.1750.
The Bank of England is expected to cut its policy rate by 25 bps to 3.75% as two consecutive inflation reports (stronger than hoped disinflation forces) should have convinced at least BoE governor Bailey to switch sides. Recall that the BoE in November by the smallest of margins voted to keep its policy rate unchanged (5-4). The amount of dissenters could be a cue for investors to shape expectations going into Q1. We err on the dovish side of expectations with markets probably underestimating the risk of a faster move towards neutral territory. Apart from the disinflationary forces, the UK economy fails to really gain traction. UK Gilts yesterday outperformed following the November CPI report with the front end of the curve dipping up to 5.8 bps and sending EUR/GBP towards 0.88. These moves can continue today.
November CPI inflation numbers are the highlight of the US calendar. It’s the first update since September numbers with the BLS skipping the October report. Consensus expects headline and core CPI at respectively 3.1% Y/Y and 3% Y/Y. We don’t expect big deviations. If any, they probably carry little market-moving potential as US markets currently focus on activity and labour market data.
News and views
The New Zealand economy grew by 1.1% Q/Q and 1.3% Y/Y in Q3, rebounding from a 1% Q/Q contraction in Q2. Still GDP was 0.5% lower in the four quarters between September 2024-2025. The Q3 recovery was broad-based with growth in 14 out of 16 industries. Business services were the largest contributor to the overall increase in GDP, up 1.6% Q/Q, Manufacturing was up 2.2% Q/Q (after a 3.9% fall in Q2), driven by food, beverage, and tobacco manufacturing. Information media and telecommunications was the largest drag on growth (-2.1%Q/Q). GDP per capita rose 0.9%. On the demand side, the expenditure measure of GDP rose 1.3% Q/Q. However, household consumption expenditure only rose 0.1% Expenditure on durables rose by 2%, while expenditure on services fell 0.1%% and non-durables fell 0.2%. Gross fixed capital formation, up 3.2%, and exports contributed to the rise. The Reserve Bank of New Zealand at its November meeting indicated that it probably finished its easing cycle at 2.25%. Both ST yields (2-y: -1.6 bps at 2.72%) and the kiwi dollar (NZD/USD 0.576) are slightly softer this morning.
After a mild setback in November, Hungarian economic sentiment improved further this month, with the overall GKI-index rising from -14.4 to -11.7, the best level since June last year. Both business confidence (-8.1 from -9.9) and consumer confidence (-22.0 from -27.2) improved. The forint over the previous days corrected after a protracted rally earlier this year as the MNB changed its forward guidance. The door is now again open for some gradual further easing to be evaluated on a meeting-meeting approach. The forint trades near EUR/HUF 390.
Author
KBC Market Research Desk
KBC Bank
