The contrast between stable market metrics and recession-stuck Eurozone offers little choice to the ECB but to opt for the rate cut route instead of the LTRO alternative. A 25-bp cut may be insignificant, but failure to cut would disappoint 80% of market participants expecting a rate cut, which may trigger a fresh euro rally to the detriment of the already struggling Eurozone, including a recession-bound Germany.
A Draghi rate cut would be more tactical than macroeconomic.
That is especially the case considering the FOMC will most likely downgrade its economic view and put to rest all speculation of tapering QE before year-end. A dovish Fed on Wednesday will have to be followed by a dovish ECB on Thursday.
Is the US already in a recession? Will July's Fed rate hike be the final rate hike of 2022? Will the Fed follow up with one more rate hike in September, and more in Q4 or will it pause in Q4, before resuming in Q1 2023? Which of the below do you think is the most appropriate? Select your choice in the poll below, then iew the results.