ECB meeting today, rate cut coming. What predictions? LIVE from the markets

There ECB meeting todayThursday 6 June promises to be crucial.

The first interest rate cut it is taken for granted. If confirmed, this would be a turning point following the surge in the cost of borrowing from the summer of 2022 onwards. The European Central Bank therefore seems set to decrease rates now to 4.50% as has not happened since 2019 and before other large banks such as the BoE and the Fed. However, what happens next represents the biggest puzzle for investors.

Despite having expressed confidence in the falling consumer prices in the Eurozone, in fact, several Eurotower officials have curbed the markets’ euphoria over cuts. Sentiment remains cautious and some members of the Governing Council have already announced that the cost of money will decrease it will not happen again in July.

Inflation moved closer to the bank’s 2% target but rose more than expected in May and remains sticky in the services sector. Meanwhile, the Eurozone economy is recovering faster than expected and the labor market remains tight, casting uncertainty on how many times will the central bank cut rates this year.

In this context of cautious optimism, the ECB meeting on Thursday 6 June triggered several predictions about what Lagarde will announce at the press conference. The probable decision to cut rates will also be accompanied by the update of the economic projectionsraising expectations about the match.

While waiting for the ECB meeting, what is happening in the markets? LIVE

Lagarde and other officials are meeting this morning, with the decision on rates which will be published at 2.15 pm, together with the official press release of the meeting. At 2.45 pm the governor will begin the press conference with journalists. Money.it will follow Lagarde’s decision and words live.

Meanwhile, markets are waiting for the first rate cut. These are the updates:

ECB meeting today: towards the first rate cut. What to expect?

Many ECB officials have almost promised a rate cut in June and will most likely not deny the hypothesis of an initial easing of monetary policy.

The expectation is a cut of 25 basis points which will bring the ECB’s deposit rate to 3.75% from the record 4% reached last September.

The certainty about the decrease in the cost of money began to falter after the latest data on the recovery of Eurozone inflation, published last Friday. In reality, although this indication is not positive and comes right after the meeting, analysts do not foresee any surprises.

In summary, most experts say it will be difficult for ECB policymakers not to cut, after many of them have clearly signaled that they are on track to become the first major central bank to start reducing funding costs.

“The cut itself won’t be big news. The real question will be: what is the message about what comes next?” said Jens Eisenschmidt, chief European economist at Morgan Stanley.

The real risk is that this week’s move could look like a mistake if eurozone inflation continues to move away from its 2% target and the Federal Reserve and Bank of England wait much longer before starting to cut. .

Andrzej Szczepaniak, an economist at Nomura, expects the ECB to downplay May’s inflation reversal, stressing that it was driven by several one-off factors. But he also predicted that a will be adopted “cautious and gradual approach” on further cuts.

Same belief from the UBS economic team: “the 25 basis point cut on June 6 seems like a done deal”, we read in a note dated May 28th. The signals from the April 11 meeting and subsequent public statements by officials were clear: the ECB is on track to cut rates by 25 basis points to 3.75% at its June 6 meeting.

Economists at UBS believe that even the disappointing inflation data in May will not change their minds. However, they are convinced that traders will listen carefully to Lagarde’s press conference and the new macroeconomic forecasts of the ECB staff, looking for signals on the pace of rate cuts after June and, in particular, a possible second cut at the July 18 meeting. UBS is skeptical on this last point.

JPMorgan economist Greg Fuzesi called the ECB’s 4% deposit rate likely to be cut by 0.25 percentage points “a bit rushed and strange”adding that “the cost of waiting until September appears low while the benefit of obtaining greater clarity on the inflation outlook appears high”.

Finally, it should be highlighted that the ECB’s move in June is also affected by the issue of a possible divergence from the Federal Reserve. In the United States, the expected rate cut seems to be easing and the markets are pricing in a decrease in the cost of money between September and November.

In recent months the ECB has repeatedly claimed to be independent from the US central bank, but economists are debating to what extent monetary policies can really diverge.

Economic projections: what updates in the ECB meeting?

The bank is expected to revise slightly its growth and inflation projections are risingbut that shouldn’t derail his expectations that inflation will return to the target level at the end of 2025.

“The overall picture should remain the same as in March”said PIMCO portfolio manager Konstantin Veit.

At its meeting on March 7, the ECB had forecast inflation on average at 2.3% in 2024, 2.0% in 2025 and 1.9% in 2026. The growth projection for 2024 had been updated downward to 0.6%, with the expectation of weak economic activity in the short term. Growth would be split by 1.5% in 2025 and 1.6% in 2026.

Investors’ attention will be focused above all on any changes in the trend of consumer prices, especially for the current year. According to an analysis by ING, core inflation looks set to slow again, but the question is: at what pace?

“For the moment, services inflation remains high, but forward-looking indicators are gradually moving in the right direction. However, we expect services inflation to trend around 3.5% towards the end of the year, well above target.”we read in a note.

If demand for goods recovers on the back of higher real wage growth, goods inflation could accelerate slightly again towards the end of the year as supply chain issues continue to dampen supply.

What will Lagarde say in the conference? Predictions on the next moves

How will it be the trend in rates after June? The crucial question of the ECB meeting on 6 June is precisely this and analysts expect an answer from Lagarde in the press conference.

The markets now they are pricing in less than 60 basis points of cuts this yearwhich means two moves and less than a 50% chance of a third, with expectations down from April.

Some observers still predict three cuts in June, September and December. The hawks are trying to take the July move off the table. Others, such as French central bank governor Francois Villeroy de Galhau, have not ruled out the possibility entirely.

Analysts believe Lagarde will repeat the bank’s “mantra” that every decision is data-dependent. “I think they will be much less prescriptive about what comes next than they were at the June meeting.”said Paul Hollingsworth, chief European economist at BNP Paribas.

According to ING, “While many forward-looking indicators remain positive, a hot labor market, continued supply chain headwinds and a recovery in purchasing power will make for an interesting debate within the ECB Governing Council as it decides the path of monetary policy from here on ”.

As repeatedly repeated by Lagarde, i wages are under observation and much will depend on their growth to decide what to do with rates from July onwards. The governor will certainly be questioned on this issue by journalists. Economist Bert Colijn of ING highlighted: “For the ECB, the outlook for wages is encouraging enough to push it to cut rates for the first time since 2019 in June. The question remains: How many cuts might follow, and May inflation serves as a warning that next week may not mark the start of a traditional cutting cycle.”.

Salary data “they give more reasons to be gradual in the rate cut cycle, simply because we have to wait to have more confirmation that we will really get to 2% (inflation) in time”Morgan Stanley’s Eisenschmidt said.

In such a context full of pitfalls for the Eurozone economy, the ECB meeting and Lagarde’s words Thursday 6 June are full of expectations.