Today the ECB eased its policy rate by 25 basis points to 3.50%. The move was widely expected, reflected in the 100.3% probability implied by Overnight Index Swaps. This was the second cut this year and will likely be followed (111.6% probable) by a third at the ECB’s policy meeting on December 12th.
Yesterday’s Core CPI monthly data for August was 0.3%, above the 0.2% estimate. And yearly Core CPI matched the 3.2% estimate. The signal of plateauing inflation likely takes a 0.50% point cut off the table at the FOMC’s policy decision next week, but still leaves room for a 0.25% cut (implied 114% based on Fed Funds Futures).
Today’s monthly Producer Price data for August was 0.1% higher in all three categories. Monthly Core PPI was 0.3% (0.2% estimate). Meanwhile July Core PPI was revised down -0.2%. So, between July and August it can be argued that monthly core increased by 0.5% (-0.2% to 0.3%), not great optics for the Fed at its policy rate juncture.
U.S. Weekly Jobless Claims were 230k, above the 226k estimate.
Gold spot prices reached a new all-time high today at $2,551.69/oz, surpassing the August 20 intraday high at $2,531.60/oz. With a virtually guaranteed rate cut less than a week away traders are bidding up other assets in the hunt for return.
