Today, the main event of the week will be when ECB announce their rate decision at 14:15 CET. We see few, if any, new policy signals, given the limited new information that has been released since the December meeting. We expect President Lagarde to confirm that the next policy rate change is most likely a cut, which may happen in summer. It remains to be seen whether the June meeting will be singled out as the key meeting to watch, see ECB Preview - Stocktaking, 18 January.
Repricing continued in the rates markets this week as central bankers did little to talk rates back up. The market is currently pricing in the US short-term rates to fall below 4% by end of next year. In euro area, short-term rates are priced to approach the 2% mark late next year. Optimism about rate cuts arriving sooner rather than later has driven long-term rates lower and equities higher. The US 10y yield has fallen by more than 100bps from late October to below 4% and the S&P500 index is closing in on the all-time high levels.
The main event today will be the US jobs report released an hour earlier than usual at 13:30 (CET), due to the shift to standard (winter) time. We expect jobs growth to cool back towards the pre-September trend at +180k, yet still continue to illustrate solid labour market conditions. Markets will also keep a close eye on the average hourly earnings growth, which slowed markedly through Q3.