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Stock market celebrates prospect of Fed interest rate turnaround - ECB, SNB and Bank of England extend interest rate pause

After the US Federal Reserve extended its interest rate pause but held out the prospect of the first interest rate easing in the coming year, the European Central Bank, the Bank of England and the Swiss National Bank maintained their current key interest rates or extended their pause. Contrary to the trend, Norway's central bank raised its key interest rate once again. 

Alessandro Fezzi, LGT
Tempo di lettura
5 minuto
ECB tower
© Shutterstock

On the New York Stock Exchange, the prospect of a turnaround in interest rates next year has led to new record highs. The Dow Jones Industrial climbed 0.43% to 37,248.35 points on Thursday. The S&P 500 closed at 4,719.55 points, 0.26% higher than the previous day. On the Nasdaq, the indices were unable to hold on to their gains after a favourable start and ended the day with a moderate loss of around 0.15%. On the US bond market, yields fell further and slipped to 3.92% - the current level is 3.95%. The US dollar last traded at 1.0990 against the euro. The euro thus remained at the level to which it had risen following the ECB's interest rate decision.

Most Asia-Pacific markets rose on Friday, led by Hong Kong. The Hang Seng index in Hong Kong rose by 2%, while the CSI 300 index gave up earlier gains and fell by 0.25%. The Nikkei 225 in Tokyo recovered from Thursday's losses and improved by 0.9%. South Korea's Kospi gained 0.75%. In Australia, the S&P/ASX 200 gained 0.9%, reaching a four-month high.

As expected, the European Central Bank (ECB) maintained its current interest rate level for the second time in a row. The key interest rate thus remains at 4.5%. In doing so, the ECB is taking account of the fall in inflation in the eurozone (November 2.4%) on the one hand and the further weakening of the euro economy on the other. In its new forecasts, the ECB also assumes that inflation will fall faster and that the economic outlook has deteriorated more than was assumed three months ago. Central bank president Christine Lagarde rejected expectations of an imminent easing of interest rates: The ECB has not discussed lowering interest rates. No discussion, no debate on this topic.

As expected, the Swiss National Bank (SNB) kept its key interest rate unchanged at 1.75% for the second time in a row and currently sees no immediate reason to tighten interest rates further. The background to this is the recent lower than expected inflation rate of 1.4%. In addition, the SNB's latest inflation forecast is back in the targeted range of zero to 2% by 2025. SNB Chairman Thomas Jordan also considers the risks to inflation to be roughly balanced.

The UK's central bank also kept a steady hand at the last interest rate decision of the current year. The Bank of England confirmed its key interest rate at 5.25% for the third time in a row. However, three of the nine council members were in favour of a further rate hike of 25 basis points. The head of the central bank, Andrew Bailey, emphasised that a further tightening of monetary policy may still be necessary if inflationary pressure persists. Although inflation also fell sharply in the UK, the inflation rate remains high at 4.6%.

Norway's central bank, on the other hand, raised its key interest rate by a further 25 basis points to 4.5% after inflation last rose to 4.8% in November. At the same time, however, the Norges Bank in Oslo held out no prospect of further interest rate hikes.

According to the latest forecasts from the Ifo Institute, the German economy will grow less strongly next year than previously assumed. The Munich-based economic researchers now anticipate GDP growth of 0.9% instead of the previous forecast of 1.4%. According to Ifo, consumer restraint has increased and companies have become less willing to invest. Ifo is forecasting economic growth of 1.3% for 2025.

Corporate news in focus: Munich Re outlook 2024, Hennes & Mauritz Q4 sales, Volkswagen Group deliveries November.

Economic data in focus: German Bundesbank economic forecast (08:30 CET), France consumer prices November (08:45), purchasing managers' surveys December: France (09:15), Germany (09:30), Eurozone (10:00), UK (10:30) and USA (15:45). Italy consumer prices (11:00), Russia central bank interest rate decision (11:30), USA Empire State industrial indicator (14:30), industrial production (15:15).



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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.