ECB Set to Cut Rates, Fueling Global "Rate Cut Wave"

The European Central Bank (ECB) may cut interest rates in the coming week, further propelling the global monetary policy easing cycle, just a month after policymakers had almost ruled out the possibility of a rate cut. Economists predict that the ECB will cut rates by 25 basis points this week, marking the third rate cut in this cycle, which could indicate that officials will take accelerated action to cushion the impact of the long-term high borrowing costs in the Eurozone on economic growth.

ECB President Christine Lagarde will hold a press conference after the interest rate decision on Thursday, where she may be asked about the path of further rate cuts and what substantial changes have occurred compared to the September meeting. With only five weeks between the two meetings, which is shorter than usual, and not much new data available, officials seem to have abandoned their recent cautious stance on the persistence of inflationary pressures, mainly in response to survey data showing a contraction in the private sector economy.

These reports have had an impact on financial markets and have provided momentum for rate cuts. This shift has come abruptly. At the meeting on September 12th, officials had almost ruled out the possibility of a rate cut in October. A few days later, Slovakian central bank governor Peter Kazimir announced that "we will almost certainly have to wait until December" for further action, as there was "almost no new information" by October 17th.

Kazimir is currently the only ECB official who has publicly opposed the rate cut on Thursday, although other officials' statements and market pricing have already shown that a rate cut this week is almost a foregone conclusion.

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Looking ahead, a survey indicates that economists now believe the ECB will accelerate its easing policies, reducing borrowing costs to a level that no longer constrains the economy by the end of 2025. Additionally, other central banks from Southeast Asia to Chile will announce their interest rate decisions this week, and the UK inflation rate may finally fall below 2%. The Nobel Prize in Economic Sciences will be announced in Stockholm on Monday.

Multiple central banks will announce their interest rate decisions this week.Here are other events and data worth watching this week:

United States and Canada

Economic reports in the United States will provide insights into the conditions of consumers, manufacturers, and homebuilders. Data expected to be released on Thursday is anticipated to show a steady increase in retail sales, highlighting the resilience of consumer spending.

The GDPNow forecast from the Atlanta Fed currently suggests that an acceleration in personal consumption expenditures will drive stronger economic growth in the third quarter.

Meanwhile, the Federal Reserve's report due on Thursday is expected to show a slowdown in factory output, indicating that the manufacturing sector is struggling. Housing starts may indicate a cooling in residential construction activity.

Considering that Hurricane "Helen" made landfall later in September, its impact on the economic data for September may be minimal. However, "Helen" and Hurricane "Milton" are expected to distort the data for October.

Upcoming speeches by Federal Reserve officials in the week ahead include Christopher Waller, Neel Kashkari, and Mary Daly.

Heading north, after the overall inflation rate reached the 2% target in August, the Bank of Canada will be watching to see if core inflation data for September shows further cooling.

However, an unexpected slight upward movement in core inflation will not divert policymakers from their accommodative path, as they have indicated that they expect some bumps along the road to a sustainable return to the inflation target.

AsiaThe Monetary Authority of Singapore is set to release a policy statement on Monday, while central banks across Southeast Asia will take a series of actions on Wednesday. The market expects the Central Bank of the Philippines to cut its benchmark and overnight deposit rates by 25 basis points each, while the Bank of Thailand and Bank of Indonesia may keep their policies unchanged. Japan's consumer price index (CPI) for September is expected to remain above the Bank of Japan's target for the 27th consecutive month, and labor statistics to be released by Australia on Thursday may reflect ongoing tightness in the labor market. Data released on Monday may show a rebound in Singapore's economic growth in the third quarter. Trade data will be announced by China, Japan, Indonesia, India, Singapore, and Malaysia, while New Zealand will release its third-quarter consumer price data.

Europe, Middle East, Africa

In addition to the interest rate decision of the European Central Bank, the United Kingdom may also be in the spotlight as it will release data on wages, inflation, and retail sales. Bank of England Governor Bailey has hinted that he may be willing to adopt a more aggressive easing policy, and these data will allow observers to assess whether inflation has become mild enough to support further rate cuts. Economists predict that UK inflation in September will slow down and fall below the 2% target level for the first time since April 2021.

UK inflation in September may drop below the Bank of England's target.

Meanwhile, the United Kingdom is hosting a major investment summit to showcase its attractiveness to multinational corporations and fund managers.In the Eurozone, as the German ZEW investor survey is released, the latest forecast from the German government acknowledges that the largest economy in Europe may contract this year.

Italy's fiscal affairs may draw attention, with the country's budget due on Tuesday evening, just in time for the European Union's deadline. Both Fitch Ratings and S&P Global Ratings plan to release their latest assessments on Italy after the market closes on Friday.

The region's economic difficulties are likely to be a focal point at the EU leaders' summit in Brussels on Thursday and Friday, with competitiveness being one of the items on the agenda.

The South African Reserve Bank will release its semi-annual monetary policy assessment, providing guidance on inflation and interest rate prospects. Chairman Lesetja Kganyago will speak at the event.

Nigerian investors will be closely watching whether the annual inflation for September continues to decelerate, despite rising oil prices and flood disasters increasing price pressures. The current inflation rate stands at 32.2%.

The Central Bank of Turkey may keep interest rates unchanged at 50% for a seventh consecutive meeting on Thursday. Inflation has dropped from 75% in May to 49% in September, but officials want to see further declines before considering easing policies. Some analysts believe that policymakers will postpone rate cuts until 2025.

The Central Bank of Egypt may maintain interest rates at 27.25%, following data showing that inflation accelerated for a second consecutive month in September. Banks such as Goldman Sachs currently expect rate cuts to be postponed until early next year.

Latin America

Below-expectation inflation data may prompt the Central Bank of Chile to cut rates by 25 basis points to 5.25%. This would bring the total reduction in this cycle to 600 basis points, with another 75 basis points likely by the end of 2025.

Among other major Latin American central banks, Peru's easing policies are largely in line with expectations, while actions in Brazil, Colombia, and Mexico are much more moderate than the general expectations in mid-2023.Latin America's loose policies are milder than expected

The unemployment rate in the Peruvian capital rose slightly to 6.1% in August, and the unemployment rate for September, which will be released on Tuesday, may rise slightly again. However, as the economy continues to add jobs, the unemployment rate is approaching its post-pandemic low.

Also on Tuesday, Colombia will release data on industrial production, manufacturing production, and retail sales for August.

GDP proxy data for Brazil, Colombia, and Peru may show that these three economies encountered resistance in July after experiencing rapid growth in the first half of the year.