Eurozone Stocks Get off to a Positive Start Ahead of Today’s ECB Policy Meeting

The main European indices are higher today as the market extends bets on ECB policy action later today.

Investors widely expect the central bank to cut rates by 0.25% today. There may be room for a larger than expected rate cut, and the markets seem to be driven by this sentiment on today’s open.

The ECB’s monetary policy decision will come soon after inflation data for the Eurozone. Inflation is expected to decline, and EU statistics are usually very accurate, so I don’t expect any surprise there.

The YoY inflation rate is expected to fall to 1.8%, well below the 2% target from the CB. While Core inflation YoY is expected to decline slightly to 2.7% from 2.8%. These numbers are already priced into the market, I expect limited volatility after the release.

We will almost certainly get a surge in volatility post interest rate decision, and that should continue once the ECB’s president Lagarde starts speaking at the press conference. The market will be looking for clues on forward guidance.

I expect the chief banker’s stance will be the typical; depending on the data we act accordingly. The market might still get some clues on how severe the ECB believe the economic slowdown may be.

And how fast the inflation rate might decline going forward. These two opinions may also give an idea as to how much more work the central bank has before stabilizing prices. Hopefully, in the process the economy gets a kick-start.

DAX Seeking New Highs – CAC Recovers from Lows

The DAX hit a new high all-time high on Tuesday and retraced lower. Today’s rally on high expectations on the ECB meeting has lifted the index 0.52% on the day. The German stock market is seeking higher highs despite the not so good news from its automakers and the economy in general.

The French stock market has been riddled with political problems. Investors have been concerned about instability in the country since election finalized at the end of July. The outcome of those elections was a hung parliament.

The CAC however, is up 0.98% on the day, outperforming its German peer by 0.46% on the day. If todays rally holds, it would make a two-day rally and lead the index away from recent lows.