This via Deutsche Bank was ahead of the rate cut (a precap?), that admittedly everyone was expecting.
- What makes this ECB rate cut cycle unusual is that it’s happening against the backdrop of fairly buoyant equity markets.
- this is the first time since 1960 that ECB or Bundesbank rate cuts have started when the DAX has been rising over the preceding months. That’s the case whether you look at a 3m, 6m or 12m horizon.
- (DAX) was up around 5% in the months before the ECB started cutting in June, and over 15% in the year beforehand
DB add, for comparison:
- That’s quite different to the Fed, who’ve often begun to cut rates when equities have been rising, including in 2019.
And, DB off up a why, which is of interest:
- But that partly reflects the Bundesbank and ECB’s more hawkish reaction function. The ECB has a single mandate for price stability, rather than a dual mandate that also includes maximum employment. So the Fed have historically had a lower bar to clear before cutting rates, reflecting the fact that employment is an equal component of their mandate.
