Inflation & ECB Rate Cut

“We continue to expect no MRO rate cut from the ECB this week, but it is a close call. (i) The weak October inflation reading has increased considerably the likelihood of an ECB rate cut before year-end. Our baseline scenario, however, remains one of unchanged policy rates. The crucial issue is whether the October inflation reading signals that weaker underlying price pressure or one-off effects are responsible for the undershooting. (ii) If the mood in the Governing Council were to swing towards an MRO rate cut, we would expect the cut to happen in December rather than this week. (iii) We continue to expect the ECB to prevent any meaningful rise of market rates “for an extended period”, most likely via offering another longer-maturity LTRO during the first half of next year.” (Goldman Sachs)

“…..hold short across European and US duration, and expect stocks to outperform fixed income.”

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