European stocks rise and euro falls ahead of ECB interest rate decision

Live6 updates

• Thu 17 October 2024 at 11:29 am CEST

  Markets priced for ECB to cut at both meetings this year

  Ahead of today’s ECB decision, here’s some commentary from Dave Chappell, senior fund manager, fixed income at Columbia Threadneedle Investments.

  He is predicting rate cuts at both of the central bank’s remaining meetings this year.

  He said:

  “Our view after the last ECB meeting was that the indicated pause at October could evolve to a rate cut if data warranted and the Fed delivered a 50bp reduction when commencing its rate normalisation process. Both these occurred, and ECB messaging shifted to signal back-to-back cuts.

  “We believe the committee will lean towards a further rate cut in December too, unless there is a surprise to the upside in forthcoming growth or price data. However, the outlook from that point is less clear, particularly as the US may well be under a new administration.

  “The markets are priced for the ECB to cut at both meetings this year, which seems fair to our rates specialists. The curve should remain under steepening pressure as issuance remains heavy. The issue which investors are struggling with this year is the huge volatility in data.

  “In the UK, the Bank of England will most likely cut on the 7th of November. Whether or not it follows up again in December will be driven by employment and inflation over the coming weeks, and of course what the Budget looks like at the end of this month.”

• Thu 17 October 2024 at 11:02 am CEST

  Capital gains tax a sticking point for UK business ahead of budget

  As Labour’s first budget draws ever closer, campaigners and think-tanks are ramping up calls for how they think the government should approach possible changes to capital gains tax (CGT), with research on what effect changes might have on entrepreneurship.

  UK CGT is currently set at 20% on most assets. The Guardian newspaper reported last week that chancellor Rachel Reeves is considering raising CGT as high as 39% in the budget.

  Earlier this week, The Entrepreneurs Network (TEN) urged business owners to sign an open letter calling for consideration of their views on potential changes to business asset disposal relief (BADR) and CGT.

  “Higher CGT or any restrictions on BADR would make this relief less competitive at a time when the rest of the world is making their reliefs more competitive,” the open letter said. “It would mean the UK has the second-highest CGT rate in Europe, and jeopardise the success of our country’s startup ecosystem by enormously weakening the incentive individuals have to build businesses.”

  “Any revenue [a CGT rise] might raise in the short term would be more than offset by the damage it does to long-run productivity by stifling the growth of future startups,” added Philip Salter, the founder of TEN, in a LinkedIn post.

  Read the full article here

• Thu 17 October 2024 at 10:40 am CEST

  Euro hits two and a half month low

  The euro dipped to its lowest level in two and a half months ahead of the meeting, trading back around $1.0850.

  Kathleen Brooks, research director at XTB, suggests the euro has further to fall if the ECB sounds dovish today.

  “The ECB has little choice but to cut. Germany’s economy is continuing to show signs of struggle. German investor confidence was weaker than expected this week, and a number of Eurozone economies have extremely low levels of inflation.

  “As we lead up this meeting, EUR/USD has made a fresh 2-month low and is back trading around $1.0850. There is a lot of expectation already priced into the market, however, momentum is to the downside for the euro, and a dovish tilt from the ECB could exacerbate the euro even more.”

• Thu 17 October 2024 at 10:21 am CEST

  ECB expected to cut interest rates this afternoon

  

  The European Central Bank (ECB) is expected to cut interest rates this afternoon for its third time this year, taking its deposit rate to 3.25%.

  Policymakers are under pressure to cut after eurozone inflation was estimated to fall below the 2% target in September.

  Neil Hutchison, European liquidity strategies portfolio manager at J.P. Morgan Asset Management, said:

  “With Halloween on the horizon, we’re not expecting any scary surprises from the ECB this week. Spooked by weaker PMI business survey data, the ECB is likely to deliver a 0.25% rate cut.

  “Recent cooling in inflation data means they’re less burdened by potential price pressures. With minimal pushback from ECB members, markets would be surprised if a cut didn’t happen.

  “Beyond this meeting, the outlook is currently enveloped in a Halloween haze, with concerns over a potential growth slowdown and geopolitical tensions, amid resilient wage growth and low unemployment.”

• Thu 17 October 2024 at 9:49 am CEST

  Asia and US ovenight

  Stocks in Asia headed lower overnight, with the Nikkei (^N225) down 0.7% on the day in Japan after the government reported the country’s exports fell 1.7% from a year earlier in September, widening the trade deficit.

  Meanwhile the Hang Seng (^HSI) fell 1.1% in Hong Kong. The Shanghai Composite (000001.SS) was 1.05% down by the end of the session despite a Beijing briefing that promised a boost for the ailing housing sector.

  Chinese markets initially gained after officials announced the government was expanding financing for housing projects to try to turn around a slump in the property market triggered by a crackdown on excessive borrowing by developers.

  China is due to announce its economic growth data for the third quarter on Friday. Economists are forecasting annual growth at about 4.5%, short of the government’s target of about 5%.

  Across the pond, Wall Street stocks surged after better-than-expected profit reports from Morgan Stanley and United Airlines offset a retreat in tech stocks.

  The S&P 500 (^GSPC) advanced 0.47% to 5,842.47 points, and the Nasdaq Composite (^IXIC) rose 0.28% to end at 18,367.08. The Dow Jones (^DJI) gained 0.79% to a record high of 43,077.70.

• Thu 17 October 2024 at 9:23 am CEST

  Coming up…

  Good morning, and welcome back to our markets live blog. As usual we will be taking a deep dive into what’s moving markets and what’s happening across the global economy.

  Here’s a quick look at what’s on the agenda for today:

  • 7am: Trading updates: St James’ Place, Centamin, Dunelm, AJ Bell, Rentokil Initial, Mondi

  • 10am: Eurozone inflation estimate for September

  • 1.15pm: European Central Bank sets interest rates

  • 1.30pm: US retail sales for September

  • 1.30pm: US weekly jobless claims

  • 1.45pm: European Central Bank press conference

  • 4pm: US Crude Oil Inventories