In a notable turn of events, German equities celebrated a second consecutive day in positive territory, buoyed by the European Central Bank's (ECB) recent decision to further relax its monetary policy. On Thursday's market close, the DAX index recorded a healthy gain of 1.03%, contributing to a regional rally among European blue-chip indices. The ECB's Governing Council, during their latest meeting, decided to lower the deposit facility rate by 25 basis points, now positioned at 3.50%.
This adjustment was anticipated by many market analysts and was based on the evolving dynamics of underlying inflation and the robust transmission of monetary policy currently in effect. Furthermore, the interest rates for main refinancing operations and marginal lending facilities were set at 3.65% and 3.90%, respectively. Despite the rate cut, the council emphasized its commitment to maintaining a sufficiently restrictive monetary policy for as long as necessary, ensuring that inflation returns to the 2% medium-term target.
This statement underlines the ECB’s strategy to remain data-dependent, indicating that future interest rate decisions will be evaluated on a meeting-by-meeting basis. Turning our gaze across the Atlantic, insights from the US Bureau of Labor Statistics revealed that the annual inflation rate in the United States, recognized as the world's leading economy, cooled more than anticipated in August, dropping to 2.5% from the previous 2.9%.
This came well under the consensus estimate of 2.6%, suggesting an easing of inflation pressures. Additionally, the core inflation rate remained unchanged at 3.2%, aligning perfectly with market expectations. Market reactions following the US Consumer Price Index (CPI) report indicated that traders might be pricing in a quarter-point rate cut by the Federal Reserve in their upcoming meeting.
However, Scotiabank expressed caution, stating, "After US CPI, the market is priced for a quarter point Fed cut next Wednesday but that still feels too richly priced with over 100bps of cuts by year-end. I don't see the exigent circumstances that would merit upsizing unless conditions take a rapid turn for the worse which is pure spec at this point." On the corporate front, Bayer, a prominent German healthcare and agricultural group, faced notable headlines as its agrochemical business, Monsanto, celebrated a legal victory.
This mark was its 14th triumph out of 20 trials associated with allegations that its widely used Roundup weedkiller might elevate cancer risks. Specifically, a jury in the Philadelphia Court of Common Pleas ruled in favor of Monsanto in the Young Roundup product liability case, although this led to a slight dip in Bayer’s stock, which fell by 0.98% on the Frankfurt Exchange.
Overall, the market continues to navigate through a complex landscape marked by evolving monetary policies, fluctuating inflation rates, and significant corporate developments..