Danske Bank

In the euro area, we get data on consumer confidence for December. Consumer confidence has been on a rising trend the past two years but in November it unexpectedly declined.

At yesterday’s monetary policy meeting the BoE kept the Bank Rate unchanged at 4.75%, which was widely expected.

A packed European central bank day kicks off with the Riksbank decision at 9:30 CET. We expect a 25bp cut to 2.50% and that the central bank will maintain a message of more cuts at the beginning of 2025.

Focus today will be on tonight’s FOMC meeting.

Euro area PMIs rose more than expected in December recovering some of the large decline in November, with the composite PMI rising to 51.4 from 49.5 (cons: 49.5).

We expect the Bank of England (BoE) to keep the Bank Rate unchanged at 4.75% on Thursday 19 December in line with consensus and market pricing.

Today all eyes are on the euro area December flash PMIs as the very large decline in November caused significant market moves.

We expect the Fed to cut the policy rate target by 25bp in the December meeting. The Fed could also cut the ON RRP facility rate by an additional 5bp, but we do not expect this to have a significant impact on the policy stance (see p. 2).Markets have fully priced in next week’s cut. Main focus will be on updated rate projections, and especially on the FOMC’s latest view on the terminal rate level. 2024 and 2025 GDP and inflation forecasts will likely get revised slightly higher.We think the Fed is likely to continue cutting rates faster than markets expect also in 2025. If the ‘dots’ continue to signal several cuts for 2025, UST yields could shift lower and EUR/USD edge higher upon announcement.

Next week, the ECB is set to cut rates for the fourth time this year. Unlike the previous three cuts, the outcome of next week’s rate decision is not given as 1) the restrictive policy stance, 2) the deteriorating growth outlook, and 3) inflation at target has opened discussions of a 50bp cut. While a 50bp cut will certainly be discussed, we judge that the ECB will ultimately deliver a 25bp rate cut, and guide that they are open to any size of rate cuts at future meetings, subject to the incoming data. A 25bp cut next week will bring the ECB’s deposit rate to 3.0%. In the coming year, we expect a string of rate cuts, leading to a terminal rate of 1.5% being reached in September 2025.We expect a benign market reaction, even if Lagarde decides to twist guidance towards an increasing likelihood of a faster rate of normalisation.