This morning the
Unemployment hit a new all-time high.
And inflation fell to 1.2%.
With unemployment this high and inflation this low, the obvious thing is for the ECB to cut rates. And though the ECB probably should have cut rates awhile ago, a rate cut this Thursday now seems like a done deal.
It's possible the ECB will even do more than a 25 basis point cut.
Says economist Frederik Ducrozet of Credit Agricole:
Weak activity and inflation data have strengthened the case for a policy surprise by the ECB on Thursday, relative to our forecast of a 25bp Refi rate cut.
A one-off 50bp rate cut would arguably have a much larger market impact. The proximity of the zero bound and the ECB’s reluctance to deliver large cuts suggest that the likelihood remains relatively low. A negative deposit rate, meanwhile, looks very unlikely. On balance, we still believe that the Governing Council will cut by ‘only’ 25bp, probably in a unanimous decision, leaving all options open for the future.
Meanwhile, talk grows in Europe of slowing down on austerity and deficit reduction targets, which is a modest form of stimulus.
So Europe could be looking at both monetary easing and help on the fiscal side.