European markets climb in anticipation of ECB rate cut

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(Source: Reuters)

(Source: Yahoo! Finance)

Both the Stoxx50 index and the euro have been climbing over the past five days as an anticipated European Central Bank rate cut is priced in. Data coming out of the Eurozone is bad enough that analysts believe this is all but guaranteed.

Jennifer McKeown of Capital Economics:

The euro-zone rate is now the lowest since February 2010 and well below the ECB’s 2% price stability ceiling. April’s fall was partly down to weaker energy inflation, but core inflation more than reversed last month’s rise, leaving it at just 1%. Admittedly, the fall probably partly reflects the timing of Easter and might be partially reversed next month.

But March’s euro-zone unemployment data add to the evidence of strong downward pressure on underlying inflation. A moderate monthly rise of 62,000 pushed the rate up to yet another record high of 12.1%.

The situation in the periphery remains particularly dire, but note that the number of unemployed rose even in Germany. It will be a disappointment if the ECB does not both cut rates this week and announce further unconventional policies to boost bank lending.

Howard Archer of IHS Global Insight:

Very low and receding Eurozone consumer price inflation gives the ECB ample scope to cut interest rates from 0.75% to 0.50% at its May policy meeting on Thursday, while ongoing poor Eurozone economic news give the bank ample reason to act Latest comments by a number of senior ECB officials indicate that an interest rate cut is very much on the cards for Thursday, and we think the bank is more likely than not to act. If the ECB does hold fire on interest rates next Thursday, it is very likely only delaying the inevitable.