In this quarterly asset allocation update, we provide the typical Croatian EUR investor with an in-depth market analysis, explanations of the individual asset classes, and the optimal portfolios under various risk tolerance levels. |
We now expect that the ECB will cut interest rates again in October. We see many good reasons and interesting background factors on top of the recent positive inflation print for the increased degree of monetary policy flexibility at the European Central Bank, which is beneficial for the euro area overall. |
Unexpected by economists, but less so by markets, the Fed decided to decrease key interest rates by 50 instead of 25 basis points. It is a shift in the risk balance which triggered the (split) decision. The Fed is concerned about the labour market outlook and sees the risks to its unemployment rate projection as tilted to the upside. Interestingly, in spite of the larger than expected rate cut the FOMC only sees 50 basis points in additional rate cuts until year-end. Whether the Fed actually shifts to a slower pace will not only depend on how the US economy develops but - as this meeting has shown - also on how the market perceives the Fed. This time the Fed was not willing to risk even a slightly hawkish surprise. |
The September blues was almost blown away in the current week, but this is not due to the current stormy weather conditions, but rather to the intact disinflation trend and the interest rate cuts and hopes in this regard. Nonetheless, sentiment remains tense, with the peak phase of the US election campaign likely contributing to this alongside flaring fears of recession. Now that the ECB has already delivered with its interest rate cut, the Fed will be in the spotlight next week. So things remain exciting... |
An interest rate cut of 25 basis points and a reduction in the key rate corridor are the highlights of today's ECB meeting. As expected, there were no clear signals on the pace of future rate cuts. The combination of prolonged economic weakness and persistent service price inflation does not present the ECB with an easy task. We take no signals from today's interest rate meeting to change our expectation of a rate cut in December - and none in October. |