A senior executive at Morgan Stanley told the media that recent Consumer Price Index (CPI) and labor market data in the United States and Europe have made Morgan Stanley more confident about the prospect of interest rate cuts. "We believe that the European Central Bank will see data showing inflation continuing to slow in September, and the Federal Reserve will also see inflation continue to decline."
On June 29th, Caixin reported (Editor: Zhao Hao) that on Friday (June 28th), Morgan Stanley strategists stated that as key data further indicated that inflation in the United States and the eurozone was cooling down, the Federal Reserve and the European Central Bank may cut interest rates in September.
Andrew Sheets, Managing Director and Cross-Asset Strategy Head of Morgan Stanley, told the media that recent consumer price indices and labor market data in the United States and Europe have made Morgan Stanley increasingly confident in the prospect of interest rate cuts. "We are more optimistic that both the Federal Reserve and the European Central Bank will cut interest rates in September."
Earlier this month, the European Central Bank announced a 25-basis-point cut in its three key interest rates, the bank's first rate cut since 2019; the Federal Reserve, on the other hand, continued to maintain the federal funds rate target range between 5.25% and 5.5%, indicating signs of divergent monetary policies between the two.
Federal Reserve & European Central Bank Rates Source: TRADING ECONOMICS
Sheets said that it is understandable that central banks are unwilling to make promises in advance, and they do not want the outside world to think that they are too confident about inflation risks. "But we believe that the European Central Bank will see data showing continued slowing of inflation in September, and the Federal Reserve will also observe a continued decline in inflation."
Recently, statistical data released by Eurostat showed that the eurozone's inflation in May increased by 2.6% year-on-year, higher than 2.4% in April. However, this rebound did not come as a surprise to the market as governments of several EU countries have reduced subsidies for energy this year.
On the US side, two weeks ago, the CPI and core CPI annual rates released showed a slowdown of 0.1 percentage points higher than the market expectations, recording 3.3% and 3.4%, respectively. This 0.1 percentage-point slowdown has allowed the S&P 500 Index and the Nasdaq Composite Index to set multiple historical highs.
It is worth mentioning that Sheets' interview was recorded before the release of the US PCE report on Friday. The latest data shows that the Federal Reserve's most favored indicator, the core PCE price index, increased by 0.1% on a month-on-month basis and 2.6% year-on-year, both in line with expectations, and both slightly lower than last month's 0.2% and 2.8%, respectively.
Earlier, Sheets stated that market expectations were consistent with his own. Seema Shah, Chief Global Strategist at Principal Asset Management, said, "Today's PCE data is not surprising and is a relief for the market. The Federal Reserve will welcome this."
Editor / jayden