(Bloomberg) -- JPMorgan Chase & Co. has brought forward its call for a half-point interest-rate cut from the European Central Bank to December, citing the bloc’s slowing economic activity.
The bank previously expected policymakers to wait until January to accelerate the pace of easing. The JPM report encouraged money market traders to bet on a 50-basis-point cut next month, boosting the chance of such outcome to 20% from 10%.
“The case seems strong given the sharp PMI drop, slowing services inflation momentum, likelihood of persistent trade uncertainty and a starting point of restrictive rates,” economist Greg Fuzesi wrote in a client note.
Euro-area business activity unexpectedly shrank in November, and inflation in Germany failed to accelerate as economists expected. Also the bloc’s core inflation rate didn’t edge higher as forecast.
The JPMorgan economist says there appears to be a “lack of any clear push” from dovish ECB members for a half-point cut, but the “data have moved too quickly,” justifying a bolder action soon.
Governing Council member Francois Villeroy de Galhau said Friday the ECB should continue to cut interest rates, while the exact pace of easing will be determined in coming months. Earlier this week, his colleague Isabel Schnabel came up with a more hawkish tone, saying borrowing costs are already near a level that no longer restrains the economy.
“Even though internal dynamics in the Governing Council can at times result in hard-to-understand outcomes, the data have moved in a way that in our view makes a 50bps cut compelling already in December,” JPM’s Fuzesi wrote.
German bonds extended gains after the report, with the two-year yield falling five basis points to 1.95%, the lowest since November 2022.
(Updates with context and comments from the report from paragraph five.)
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