Amundi Sees ECB Cutting Twice More Even as Traders Bet It’s Done
It’s often over a morning coffee that the most interesting market divergences emerge, and today, there’s a compelling one brewing around the European Central Bank’s next moves. While many traders are betting the ECB is largely done with its rate-cutting cycle, or perhaps has just one more move left, Amundi SA, Europe’s largest asset manager, is taking a decidedly more dovish stance. Their chief investment officer anticipates two more cuts this year, a forecast that sharply contrasts with the prevailing market consensus.
Amundi’s conviction isn’t born of wishful thinking; it’s rooted in a pragmatic assessment of the Eurozone’s economic trajectory. The argument centers on the likelihood of economic growth remaining stubbornly lackluster. We’re not talking about a recession, but rather a persistent environment where demand just isn't robust enough to ignite significant inflationary pressures from the demand side. This scenario, they believe, will ultimately compel the ECB to act more aggressively to stimulate the economy, even if headline inflation remains a bit sticky in the short term.
This perspective offers a fascinating counterpoint to the market’s current mood. After the ECB’s initial quarter-point cut in June, many market participants quickly recalibrated their expectations, largely pricing out further aggressive easing. Recent data, showing some resilience in service sector inflation and a relatively tight labor market, has certainly contributed to this more cautious outlook among traders. The feeling is that the ECB, having finally made its first move, might now prefer to proceed with extreme caution, waiting for more definitive signs that underlying inflation is truly converging to its 2% target.
However, Amundi’s view suggests a deeper read of the central bank’s predicament. The ECB isn't just battling inflation; it’s also acutely aware of the need to support an economy that has struggled to regain significant momentum. If growth remains subdued, businesses will likely hold back on investment, and consumer spending could stay muted. In such an environment, the risk of overtightening monetary policy—and thus stifling any nascent recovery—becomes a very real concern for policymakers in Frankfurt.
What's more interesting is how this divergence could play out in the bond markets and for the euro. If Amundi’s outlook proves accurate, we could see a repricing of European sovereign bonds, with yields potentially falling further as the prospect of lower rates becomes more concrete. For the euro, it would likely mean some downside pressure, as a more dovish ECB stance typically makes a currency less attractive relative to its higher-yielding peers. Businesses, particularly those reliant on borrowing, would certainly welcome the prospect of lower financing costs, potentially injecting some much-needed dynamism into investment decisions.
Ultimately, this isn't just an academic debate. It highlights the fundamental challenge facing central banks globally: navigating an uncertain economic landscape where traditional indicators don't always tell a clear story. While traders often react to the latest data print, Amundi's longer-term view reminds us that the bigger picture – the structural health of the economy – could still be the most powerful driver of monetary policy. The coming months will be crucial in determining whether the market’s current caution or Amundi’s bolder prediction holds sway.
