German CPI set to be confirmed at 3% as rate cut bets increase
By Michael Hewson (Chief Market Analyst at CMC Markets UK)
The last two days have seen European markets struggle to build on the gains of last week, with some modest profit taking starting to kick in, even as investors start to price in the prospect of rate cuts as soon as next year.
In the space of a week, we've gone from higher for longer back to rate cuts in 2024, and this time the push back from central bankers isn't anywhere near as aggressive.
In a way its not hard to understand this sort of shift given the economic data we're seeing out of Europe; however, the US is a slightly different matter given the greater resilience of the US economy.
Yesterday Bank of England chief economist Huw Pill said that it wasn't unreasonable to predict rate cuts in the middle of next year, sending UK 2-year gilt yields to their lowest levels since early June, ahead of next week's October inflation numbers which could see a sizeable slowdown in the headline rate of CPI from 6.7% to somewhere below 5%.
Given the challenges facing the UK economy in the coming months however it's not too much of a stretch to suggest that a lack of demand might do the central bank's job for it.
The same argument applies to Europe and the European Central Bank where headline inflation is lower than in the UK and in today's final German CPI numbers for October is expected to fall from 4.3% to 3%, the lowest level since June 2021.
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