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Markets traded mostly sideways through the press conference as no guidance was given of how aggressive the cutting cycle will be or the potential end-point.

‘Well on track’

The ECB judged that since the last GC meeting in September ‘The incoming information on inflation shows that the disinflationary process is well on track.’ And that the ‘inflation outlook is also affected by recent downside surprises in indicators of economic activity’. This morning the final inflation release also confirmed the surprisingly low inflation momentum, driven by services, which supported the ECB’s assessment. During the press conference Lagarde said they were ‘all a little bit surprised by the acceleration’, with a reference to the inflation print of 1.7% y/y in September.

Downside risks gaining traction

Listening to Lagarde yesterday, it was clear that the weakening of ‘all indicators’ since the last meeting has come as a surprise for the governing council. This raises the question of whether the ECB should intensify its efforts towards policy easing. However, the ECB is still seeking clarity on whether the current tight financial conditions have adequately addressed the underlying drivers of inflation. The labour market continues to demonstrate resilience, although employment has recently plateaued, and domestic inflation remains high at nearly 4% (3.9% in September), propelled by sustained wage pressures. The ECB still observes signs of profit margins absorbing rising costs, which is crucial for the continuation of the disinflationary process. However, it remains concerned that the current resumption of household purchasing power might fuel future inflation. The substantial data package (e.g. 2 x PMI, 2 inflation prints) prior to the December meeting could become instrumental for the staff projections and to what degree the risk of undershooting the inflation target has risen recently. At yesterday’s meeting, Lagarde remained hesitant about making any clear judgements, but recall that just a month ago, ECB members seemed split on the need to cut rates at the October meeting. Yesterday, the decision was taken unanimously.

Still restrictive, but for how long?

The ECB’s decision also included an interesting reference to financing conditions remaining restrictive; however, with the weak economic activity and disinflationary process on track, the question becomes for how long should we expect the ECB policy stance to stay restrictive? In our baseline scenario, we see the ECB only cutting to 2%, which is broadly considered the neutral policy rate by the end of next year. However, the bigger question remains whether there is a risk of the ECB feeling the need to cut slightly below that. Markets are pricing this at around 40% .

Market Picture

The cryptocurrency market remains steady at around $2.31 trillion in market capitalisation, mirroring the local highs of late September, while Bitcoin continues to climb. The pause in overall growth has led to a 2-point dip in the Cryptocurrency Market Sentiment Index, now at 71—still reflecting a high level of greed.

Bitcoin is currently at $67.1K, showing a 0.5% increase over the past 24 hours but a slight 0.5% decline since the day’s opening. These minor fluctuations largely mirror the stabilisation seen in stock indices. This pause benefits the Bitcoin bulls, allowing the market to cool off after the recent rally.

The upcoming ECB interest rate decisions and US retail sales figures, set to be released just before the US session begins, could potentially disrupt the market’s current stability.

News Background

Tesla has transferred its entire 11,509 BTC holdings, valued at approximately $760 million, to unknown addresses, as reported by Arkham Intelligence. Meanwhile, SpaceX, also owned by Elon Musk, continues to hold 8,285 BTC in Coinbase’s Prime Custody wallet service.

Since Bitcoin reached new highs in March, the gap between demand and ‘active supply’ has widened, a trend that Glassnode notes is historically a precursor to periods of heightened volatility.

According to its issuer, Tether, at the end of the third quarter of 2024, the USDT stablecoin was used by 330 million cryptocurrency wallets and on-chain accounts. The company compared the figure to the US population and attributed the increase in users to second-tier solutions and the development of the TON ecosystem.

The Kenya Revenue Authority is introducing a new control system that will integrate with cryptocurrency exchanges. This system will enable real-time tracking of crypto transactions to ensure timely tax collection.

The economic policies being proposed by Republican presidential candidate Donald Trump would fuel inflation and harm businesses, US Treasury Secretary Janet Yellen plans to warn in a speech, according to a report in the New York Times on Thursday.

Yellen's critique is set to be delivered in remarks to the Council on Foreign Relations and although she is not expected to mention Trump by name she will argue that the broad tariffs the former US president and some Republicans in Congress support would damage the US economy, the New York Times said, citing Yellen's speech obtained by the newspaper.

"Sweeping, untargeted tariffs would raise prices for American families and make our businesses less competitive," Yellen plans to say.

Trump has made tariffs and tax cuts the key elements of his economic pitch to voters, the majority of whom view the economy as the biggest campaign issue of the 2024 presidential election.

Trump defended his trade policies and other fiscal proposals in an interview on Tuesday with Bloomberg News editor-in-chief John Micklethwait.

He maintained that his trade policies — which call for pricey tariffs on goods not only from rivals such as China but allies such as the European Union — would revitalise American manufacturing and yield enough revenue to ease concerns about ballooning the deficit.

Source: The edge markets

"The incoming information on inflation shows that the disinflationary process is well on track," Lagarde said.

Source: Euronews