ECB trims interest rate for third time amid cooling inflation

The European Central Bank (ECB) lowered interest rates for the third time this year, cutting its key deposit rate by 25 bps to 3.25%. The ECB said the move aims to curb potential for “downside surprises” in the eurozone economy. The move is the bank’s first back-to-back rate cut in 13 years, five weeks after a previous rate cut.

The context: Inflation dropped below the eurozone’s 2% target to 1.7% in September, its lowest level in three years.

REMEMBER- Central banks are pivoting toward cutting rates as inflation slows down, with the US Federal Reserve spearheading the global policy-easing cycle, cutting interest rates by half a percentage point in September.

The rate cut is expected to spur growth for the region by giving “a boost to the German [and wider eurozone] economy, inspiring consumer spending, encouraging investment, and ultimately stimulating the economy,” Joe Nellis, an adviser to the financial consultancy MHA, told The Guardian. Germany, the region’s largest economy, faces the risk of a second year of contraction.

If inflation remains on its downward slide, an aggressive cut could be on the table. “A 50 bps cut at the next meeting in December is a possibility if the two inflation and PMI prints of October and November continue to surprise on the downside,” said Douglas Lytle, an editor at Bloomberg Intelligence.

ECB president Christine Lagarde signaled that the bank is unlikely to stick to “a particular rate path,” only keeping rates “sufficiently restrictive for as long as necessary” to achieve its 2% target.

Some pundits concur, seeing as the ECB “will likely want to keep flexibility about a December cut and will push back against the idea that this is the start of consecutive cuts,” ING said in a note ahead of the decision.

MARKETS THIS MORNING-

Asian markets opened mostly in the green this morning, with only the ASX 200 in Australia bucking the trend. The Nikkei, Hang Seng, and Shanghai Composite are all up in early trading.

Dow, S&P, and Nasdaq futures were all unchanged in overnight trading, while in Europe it seems the CAC 40 is the only major benchmark set to open in the green as investors mull the ECB’s rate cut yesterday: Look for the Euro Stoxx 50, the FTSE 100 and the Dax 30 all to come under a bit of selling pressure at the opening bell.

THE CLOSING BELL-

The DFM fell 0.6% yesterday on turnover of AED 411.0 mn. The index is up 9.8% YTD.

In the green: Ekttitab Holding Company (+3.3%), Al Firdous Holdings (+2.3%) and Ajman Bank (+1.7%).

In the red: BHM Capital Financial Services (-5.7%), Emirates Reem Investments Company (-2.7%) and Emirates NBD (-2.7%).

Over on the ADX, the index fell 0.3% yesterday on turnover of AED 1.08 bn. Meanwhile Nasdaq Dubai closed down 1.4%.

CORPORATE ACTIONS-

GulfNav inches closer to Brooge takeover: Maritime player GulfNav has provided the Securities and Commodities Authority (SCA) with all required documents for its acquisition of oil storage outfit Brooge Petroleum and Gas Investment Company from Brooge Energy, according to a DFM disclosure (pdf). The SCA is currently reviewing the documents, which include a valuation report.

The transaction, if it goes ahead, will be a share swap, with GulfNav’s board having approved an AED 448.5 mn capital increase — equivalent to the value of the shares that will be issued to Brooge.

BACKGROUND- GulfNav received board approval for key terms of the acquisition earlier in September, after submitting an acquisition proposal earlier in the year to the SCA, following its initial proposal back in October 2023.