The lack of momentum in the CAC40 is also due to the still firm position of several members of the ECB on the issue of interest rates. During a Q&A session on restrictive as long as necessary to ensure inflation returns to 2% sustainably. Adds, and this is an important sentence, that “the economic slowdown is part of the transmission of monetary policy”.
This in response to a question about why the ECB did not lower its interest rates in the current context of recession in Europe.
We remember that Christine Lagarde herself had not opened the door to discussions about interest rate cuts during her last press conference in mid-December, unlike the president of the Fed the day before, even though the markets expected almost 6 interest rate cuts of 25 basis points in 2024, both for the Fed and for the ECB, with a first move expected in March.
In particular, ECB members are awaiting further data on the pace of euro area wage growth to make their decision on rates. This appears from the interview with Philip Lane, chief economist at the ECB, in an interview with the Italian daily Corriere della Sera at the weekend. He said the ECB would have a number of key data before the June meeting to decide on a series of rate cuts.
Even if he added that the ECB was looking at all data every week, this mention of June raises some doubts about an intervention by the ECB in its interest rates in March, which the markets expect…Philip Lane continued along these lines, indicating that a too rapid fall in interest rates could trigger a new wave of inflation, potentially forcing the ECB to raise interest rates further.
Philip Lane also indicated last week that rate cuts were “not a short-term issue”
The CAC40 may therefore continue to be hampered in its upward ambitions in the coming weeks due to the ECB’s “higher for longer” stance on its interest rates. And the question also arises on the US side of the Fed. We remember that Fed doves wanted to tone down Jerome Powell’s comments on the issue of interest rate cuts.
Raphael Bostic, a real dove at the Fed, last week mentioned the third quarter as a possible period for a first rate cut. Very far from the markets’ expectation of a first rate cut in March. This wide gap between market expectations and recent statements from members of the Fed and ECB could prove counterproductive for equity markets in the coming weeks and push for some more consolidation before momentum resumes.