Inflation in Europe is declining but remains high, therefore out of target (in Italy: in August 5.44%, September 5.34%; in France: in August 4.9%, September 4.9%; in UK: in August 6.7%, in September 6.7%). This is influenced by geo-political events, first of all the conflict between Israel and Palestine, which causes risks to the energy sector, with the price of oil remaining high (BRENT: $88) further adding inflationary pressures.
While some members of the ECB were leaning towards maintaining the current interest rates, others were concerned that this could spark rumors about the end of the tightening cycle. Therefore, in spite of the global overheating scenario, we find ourselves in a phase of anticipation where it would be prudent for the ECB to hold steady on interest rates.
In fact, the Governing Council of the European Central Bank today, 26 October 2023, decided in Athens to stop the series of interest rate hikes that had lasted for 10 sessions (a total of 450 basis points for the three interest rates of reference). The cost of money therefore remains stable at 4.50%.
The ECB expects that inflation will remain too high and that domestic price pressures will be strong. However, inflation fell in September and underlying inflation measures decreased. Earlier interest rate increases curbed demand and contributed to the reduction in inflation. The Council believes that if the reference rates are maintained for a good amount of time, they will bring the expected result of lowering inflation.
The ECB will maintain the reference rates at restrictive levels as long as necessary to achieve price stability. Confirmed the line on the PEPP (Pandemic Emergency Purchase Programme): reinvestments will continue at least until the end of 2024.
Surprisingly, in Q3 2023, the US economy grew by an annualized 4.9%, the highest since Q4 2021, exceeding market predictions of 4.5%. Consumer spending increased by 4%, led by housing, utilities and healthcare.
Market reaction at US open has been quite negative because of the GDP reading in the US. S&P500 was down 0.61%, Nasdaq was down more than 1%, and European market turned down.