We believe that based upon current set of economic indicators which show Germany is almost close to a recession, ECB might be forced to cut by 50 bps in it’s 12th Dec meeting. We believe that the terminal rate for Eurozone is 1.75% i.e. below neutral which should be achieved by Sep CY25. Currently markets are pricing in only 36bp in cuts for December 2024. ECB's decision to cut rates by 50 bps in it's Dec meeting might be further aided by a fall in Brent prices which we expect to see touch 70 levels by end CY24. We also believe that in case Trump returns to power in US, tariffs are a certainty & ECB might cut more actively to safeguard it’s domestic economy from tariffs impact.
