Sep 12, 2023

ECB rate decision uncertain as economy underperforms.

DAX Daily Chart

DAX: Daily Chart

The German DAX index found support at the 15,573 level and is expected to continue its upward trend.

The European Central Bank (ECB) has downgraded its growth forecasts for the Euro Area, citing Germany as a key risk. Germany’s GDP for 2023 has now been downgraded to -0.4%, indicating that Europe’s largest economy is contracting. The only positive is that inflation is expected to fall.

BofA Global Research predicted last week that the European Central Bank (ECB) would raise all three policy rates by 25 basis points at its September 14 meeting. The brokerage expects “very little” in the outlook for subsequent meetings, but stated that the bias would be toward pausing rate hikes.

BofA Global Research stated that while convictions for the ECB’s upcoming meeting are “not strong,” in the absence of major surprises, if the ECB does not hike in September, “July would be the last hike of this cycle.”

European stock indices could be buoyed if the European Central Bank (ECB) does not raise interest rates this week.

François Villeroy de Galhau, the governor of the Bank of France, suggested that another rate hike could still be possible in the future, arguing that the economic slowdown does not constitute a recession and that the European Central Bank (ECB) must continue its fight against inflation.

“Our options are open at this council as well as at the following meetings,” he told reporters. “We are very close to the peak in our interest rates. We are, however, still far from the point where we could consider cutting them.”

Slovakia’s Peter Kazimir adopted a more stringent stance, asserting that another rate hike was still required to bring inflation under control. He went on to say that the ECB could postpone a rate increase until an autumn meeting or take action this week.

“The second option seems preferable and reasonable to me,” Mr. Kazimir said. “It is to deliver another 25 basis points next week and take a breather thereafter.”

Dutch central bank governor Klaas Knot has also wanted to see continued efforts against inflation and said investors may be underestimating the chances of a move, with the decision being a close call.

“I remain of the opinion that achieving our inflation target of 2% by the end of 2025 is the bare minimum we must deliver,” Mr. Knot told Bloomberg.

The Dax could go up this week if the ECB decides to stop raising interest rates, but if they raise them again, stocks could take a hit.

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