Despite the summer signal, the market is optimistic about AMB pricing

Although the European Central Bank (ECB) made a direction indicating the summer months for interest rate cuts at its last meeting, market pricing showed that the first cut was expected in April. European Central Bank (ECB) President Christine Lagarde said in a statement following the first interest rate decision of the year that she stood by her previous statement that interest rate cuts could start in the summer months. Markets, however, evaluated this statement as an earlier cut. Following the statements, investors priced in a 90 percent probability of an interest rate cut in April, while they increased the total amount of cuts they foresaw for the entire year from 130 to 141 basis points. Thus, markets turned a deaf ear to the calls of institutions such as the International Monetary Fund (IMF) and central bankers around the world not to ease monetary policy too hastily before the inflation problem is overcome. Seema Shah, Strategist at Principal Asset Management, said, “Although President Lagarde stands by her previous comments suggesting that interest rate cuts are likely in the summer months, the rest of her speech seems to support earlier interest rate cuts.” “As he noted, the risks to economic growth are on the downside, with underlying inflation continuing to trend down and wage growth stalling,” Shah said. “The ECB is clearly data-dependent, but the data they are focused on points to a rate cut in the next few months, potentially in April. Summer could come early this year.”