ECB Lagarde Glasses

It's a universal acceptance that the ECB will cut interest rates by 25 bps later today. They've telegraphed that quite clearly to markets over the last few weeks. So, don't expect any surprises on that front whatsoever. But in terms of market pricing, what are traders seeing for the remainder of the year?

In total, traders are now pricing in ~64 bps of rate cuts by the ECB for 2024. That includes the one coming later today.

So, that reads as something along the lines of two to three rate cuts for the year. In other words, another one or two more 25 bps rate cuts after this month.

Is that a plausible expectation though?

Given the circumstances, the ECB won't pre-commit to further moves. But there is every likelihood that Lagarde may stress that they will go from meeting to meeting by analysing the data. That is to say that every meeting has the potential to be a live one.

Let's be realistic though. A back-to-back move is pretty much a non-starter, at least for the time being. So, one can safely rule out another rate cut in July at least. That unless we see some extraordinary economic developments in the next one month. I wouldn't hold my breath on that though.

So, when can the ECB next act again?

That leaves them with just three more meetings for the year. One each in September, October, and December.

Should the disinflation narrative continue in Q3 this year, I reckon that may tee up one more rate cut at least for the ECB. Otherwise, they might have to stay sidelined for quite a while yet.

Given the timing, markets have many months to consider the next move by the ECB. So, the thing to watch out today - and in July - will be to fade any potential overreactions before being vindicated by data developments moving forward.