The European Central Bank (ECB) enacted its second straight interest rate cut at last week’s policy meeting with its key deposit facility rate lowered by 25 basis points (bps) to 3.25%[1]. That followed an equivalent move last month with the Bank having now cut rates three times from their peak levels. The latest round of policy easing followed a downgraded inflation figure covering September which was reduced to 1.7%, half a percentage point below the level recorded back in August[2]. Weaker core inflation which excludes energy and food prices was also supportive of the ECB’s action with interest rates expected to steadily decrease further over the next twelve months. European equities edged modestly higher, the MSCI Europe ex UK index rising by +0.2% in local currency terms whilst borrowing costs retreated.

Inflation data was also published in the UK with the headline figure matching the 1.7% reported on the Continent[3]. That was 20bps below expectations and the first time that CPI has dropped below 2.0% since 2021 having peaked at 11.0% during the cost of living crisis. Having cut interest rates back in August, the Bank of England refrained from further easing at the September policy meeting although further action is expected next month. The FTSE100 rose by +1.3% whilst the FTSE250, which is much more exposed to the domestic economic situation, rallied by +1.9%. Elsewhere, US equities continued to advance with the S&P500 gaining by +1.2% (in dollar terms) thanks to a strong late week showing. Asian equities were mixed with mainland China shares rising as Japanese indices retreated. The Shanghai Composite added +1.4% after the country’s central bank unveiled additional support measures whist the Nikkei 225 declined by -1.6% (both local currency).

In the commodities space, oil prices sold off sharply on the combination of a weak global demand outlook and slower economic growth in China. Brent Crude slumped by -8.3% to $72.65 a barrel with WTI losses event greater. Nervousness around the economic backdrop, the situation in the Middle East and the upcoming election in the US helped gold to reach new levels with the precious metal climbing by +2.3% to $2,718 an ounce.

Week Ahead

Source: Refinitiv Workspace, 21/10/24
 

[1] European Central Bank – Monetary Policy Decision Press Release 17/10/24

[2] Eurostat – CPI Inflation September 2024

[3] ONS – CPI Inflation September 2024

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