Last updated: 06:56 / Tuesday, 12 November 2013
According to ING IM

Timing of ECB Rate Cut Surprises

Timing of ECB Rate Cut Surprises

Earlier than expected the ECB decided to lower its official interest rate by 25 basis points to 0.25%. A more accommodative monetary policy is positive for global risk appetite. In this enviroment, ING Investment Management increased their overweight position in equities from +2 to +3.

The asset manager had expected this move, but not before December. Even after the cut, the ECB maintains an easing bias, saying it expects the level of interest rates to stay at the current or a lower level for an extended period of time. Hence, at this stage, the central bank does not close the door to further rate cuts.

Why the ECB has acted on 7 November

Broad support for risk appetite

Not only the ECB policy but also the policies of the other big central banks (US, Japan) are currently supportive for risk appetite. Last but not least the improving earnings, the relatively attractive equity valuations and the lack of event risks and a broad decline in uncertainty should be good for risk appetite.

What would be the biggest danger for risk appetite?

The biggest downside risk would come from a sharp rise in bond yields that is not sufficiently met with an improvement in economic data and the earnings outlook. With global monetary policy in maximum easing mode until March 2014 and better leading indicators, this is a risk scenario, but certainly not our base case scenario.

You can read the full report on the attached document.