Spring vs Summer Cuts

Market reports
Thanim Islam
  • Markets wait for Lagarde
  • US GDP to continue to show evidence of resilience
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Equities continued to climb to record highs, with markets buoyed from stimulus measures in China as well robust earnings from tech companies. Market sentiment was also boosted after both manufacturing and services PMIs both came in higher than expected, with a notable move in the manufacturing sector flipping from contraction to expansion territory. USD was initially weaker in the morning, but recovered following PMI numbers carried by a recovery in treasury yields.

Earlier in the day UK PMI numbers were also solid coming in higher than expected, giving a lift to GBP in the morning. Notably GBPEUR made a new four-month high, briefly rising above the December highs. Worth noting though positioning on GBP remains stretched, suggesting limits to how much higher it can go. European PMIs were disappointing coming in lower than expected, but price action on EUR was muted ahead of today's ECB meeting.


Market rates

* Daily move - against G10 rates at 7:30am, 25.01.24

** Indicative rates - interbank rates at 7:30am, 25.01.24

Table (57)

Data points

Table (58)


  • EUR: ECB Lagarde

Our thoughts

A couple of things to focus on today. Firstly, the ECB and the communication Christine Lagarde gives to markets on when the Bank will administer their first rate cut. It's worth noting that the ECB are keeping an eye on the situation in the Red Sea, and the potential for inflation to creep back up again on any continued tension in the region. We may well get some commentary about this today which could well suggest rate cuts in the Summer, versus the market pricing of a rate cut in April. Any delays in cuts will bode well for EUR.

Secondly, we get the first estimate of GDP in Q4 from the US. Growth is expected to drop to 2%, so a slowdown yes, but nonetheless the economy remains resilient. USD trading likely to remain with its respective trading ranges.

Chart of the day

All eyes on the ECB today and the message Christine Lagarde sends to markets to cue the first rate cut by the Bank. Wage negotiations and supply side constraints caused by tensions in the Middle East could cause Lagarde to suggest the first rate cut could come in the Summer, versus current market expectation of a 60% chance of a cut in April. We can clearly see below that the amount of rate cuts projected this year has been steadily decreasing.

25012024 cotd
Source: Bloomberg Finance L.P.

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