By George Prior
The European Central Bank is likely to cut interest rates next year, which could have far-reaching consequences for investors worldwide, predicts the CEO of one of the world’s largest independent financial advisory asset management and fintech organizations.
Nigel Green of deVere Group’s comments come as ECB Board member, Isabel Schnabel, who has previously been one of the most hawkish of the Board, told Reuters on Tuesday that given a “remarkable” fall in inflation, the central bank can now take rate hikes off the table.
Euro zone inflation fell to 2.4% last month, down from above 10% a year earlier.
He comments: “When the hawks turn dovish, and as inflation falls to within touching distance, it is reasonable to assume that the ECB will start to cut rates.
“We now expect this to begin in the first quarter of 2024.”
Free Reports:
Get our Weekly Commitment of Traders Reports - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.
Sign Up for Our Stock Market Newsletter – Get updated on News, Charts & Rankings of Public Companies when you join our Stocks Newsletter
If the ECB decides to cut interest rates, European investors are likely to experience both challenges and opportunities.
“On the one hand, lower interest rates can boost economic growth, leading to increased corporate profits and potentially higher stock prices.
“However, on the downside, savers and bond investors could face diminished returns. The repercussions of ECB interest rate cuts extend beyond Europe, influencing global bond markets.
“As the ECB lowers rates, it can be expected to trigger a broader trend of falling yields in bond markets worldwide.
“Fixed-income investors across the globe, seeking higher returns, may shift their attention to riskier assets.”
Another channel through which the ECB’s policy decisions affect global investors is currency markets. A rate cut by the ECB is likely to lead to a depreciation of the euro against other major currencies.
This can impact international investors holding euro-denominated assets, either positively or negatively, depending on their exposure and hedging strategies. For instance, European exporters may benefit from a weaker euro as it makes their goods more competitive in global markets.
Equity markets around the world are, of course, closely interconnected, and changes in one major economy can have ripple effects globally.
“A rate cut by the ECB could be expected to inject liquidity into financial markets, leading to a surge in equity prices. International investors could find opportunities for capital appreciation, especially in sectors that are sensitive to interest rates, such as real estate and utilities.”
Nigel Green concludes: “We now expect that the ECB could be among the first of the major central banks to start cutting interest rates in the first quarter of 2024.
“Investors across the globe will be closely monitoring developments and potentially adjusting their strategies to adapt to the evolving economic landscape.”
About:
deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients. It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement.
- Stock indices have hit all-time highs. The Australian labor market is starting to cool down May 16, 2024
- Target Thursdays: USDInd, Soybean & EU50 hit targets! May 16, 2024
- JPY has sharply strengthened May 16, 2024
- PBoC kept the interest rate unchanged. The US stock indices rise despite rising manufacturing inflation May 15, 2024
- Meme-stock mania: Will GameStop, AMC stocks surge even higher? May 15, 2024
- Euro climbs to five-week high ahead of US CPI data May 15, 2024
- Australia will release its annual budget today. Rising inflation expectations hurt US stock indices May 14, 2024
- JPY declines again May 14, 2024
- Trade of the Week: CHINAH to extend lead as Asia’s winner? May 13, 2024
- The German index has hit an all-time high. China sees rising consumer inflation May 13, 2024