Archive

Korea: 25bp Rate Cut To 3.0% (Consensus 3.25%) in Nov-24

• The Bank of Korea reduced its base rate by 25bp to 3.00%, defying consensus expectations, citing stabilised inflation and increased downside risks to growth.
• Weaker export performance, subdued domestic demand recovery, and heightened global uncertainties, including exchange rate volatility and US monetary policy changes, are pivotal to future rate decisions.
• Future policy will carefully balance growth support with financial stability, focusing on managing inflation, household debt, and exchange rate fluctuations amid ongoing uncertainties.

RBNZ: 50bp Rate Cut To 4.25% (Consensus 4.25%) in Nov-24

• The RBNZ lowered the OCR by 50 basis points to 4.25%, as anticipated, citing confidence in inflation converging towards the 2% midpoint of its target range and subdued economic activity.
• Domestic demand remains weak, with excess capacity and soft labour market conditions expected to persist through 2025, providing scope for additional monetary easing early next year.
• Geopolitical risks and global economic uncertainty may lead to medium-term inflation volatility, but the current policy framework positions the central bank well to address potential shocks.

Wrestling Euro Bears Before Christmas

• The Euro’s trend weakness reflects rate differentials that are already stretched, with ECB cut pricing at the extremes erroneously priced for the Fed two months ago.
• Labour market data matter, and not just to the Fed. Unemployment trends are even more hawkish in the Euro area, and the ECB should clarify the policy relevance of this.
• Seasonality also supports a fading of the fundamental consensus story. EURUSD hasn’t fallen into yearend since 2016, and crowded positioning could compound the reversal.

By Philip Rush

EA Wages Are Too Inflationary For 50bp

• Upwards revisions to Euro area labour costs and a jump in negotiated wage settlements extend cost growth inconsistent with a sustainable return to the 2% inflation target.
• The ECB hopes this will subside swiftly in 2025, with productivity growth and squeezed profit margins helping contain inflation. But these hopes seem set to be disappointed.
• Persistent wage pressures should prevent a 50bp rate cut in December and limit further cuts. Less dovish fundamentals feed bullish Euro seasonality, magnified by positioning.

By Philip Rush