Head of North American Investment Strategy & Research
Insight of the Week
The ECB, in its January meeting, left interest rates unchanged, reiterating higher for longer rates until inflation lowers to its target level.
However, markets are pricing in rate cuts beginning in April.
While the US Federal Reserve has a dual mandate of price stability and unemployment, the ECB has just the single mandate of price stability.
In past cycles, the ECB had moved from hikes to cuts only when core CPI was already under 2%. While it remains to be seen how the ECB reacts during this cycle, we can see in past rate cut cycles that the DAX on average sees downward pressure as the first rate cut date approaches.
After the first rate cut, the DAX on average has moved sideways for the next 9 months, but then delivers 8.6% and 17.7% over 12 and 24 months respectively.