Central banks worldwide are carefully considering interest rate reductions, with Switzerland's bank implementing its second cut of the year. Deutsche Bank global chief investment officer Christian Nolting joins Catalysts to explore the disparities in rate-cutting strategies among various central banks.

Nolting emphasizes that central banks must "look at their own economy and what they need to do," tailoring their approaches to their specific inflationary environments. He points out that the Swiss rate cut was primarily aimed at weakening the currency "to get some inflation in." This contrasts sharply with the situation in the United States, where inflation is "quite sticky," preventing the Federal Reserve from implementing rate cuts.

Regarding his projections for future central bank actions, Nolting states, "We think over time, and maybe that's one year's time ... we could imagine that central banks like the Fed, like the ECB are cutting three times over the next 12 months." However, he notes that global elections could impact this projection.

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Angel Smith

Video Transcript

England and Norway Central Banks holding rate study this morning as the Bank of Switzerland made its second cut of the year here in the US traders pricing in September for the first rate cut.

That's according to the CMF watch tool here to discuss the global divergence that we are seeing.

We have Christian.

No, he's the global Chief Investment Officer at de Bank.

Christian.

Thank you so much for being here.

I mean, let's start on this domino effect that was supposed to be kicked off here, right?

Allegedly, it was going to happen in Europe after the Swiss National Bank started.

Now it's continued.

Norway didn't follow.

Neither did the Bank of England this morning.

Are these international Central banks kind of waiting on their own inflation data to come before continuing to cut or are they waiting for the Federal Reserve?

Yeah, you would always have said probably the ECB always wants to wait for the fed to cut first, which historically has been the case.

Now, you've seen the ECB cutting first.

I think what the center banks need to do to look indeed, as you're saying, at their own economy and what they need to do.

So what's the inflation picture?

And I think especially for Switzerland, right?

They have cut also to weaken the currency a little bit because inflation was not a massive problem in Switzerland.

So they had some room to go and they achieved that.

So, but in the last weeks, the currency was strengthening.

So I think that opened for them uh to come one more time here, which they did today and you see the currency weakening a little bit in order to get again uh some inflation in because it's not that they are so much worried about inflation.

That's probably different in the US.

Where of course you need to look from a fed perspective that's also above you.

Inflation is quite sticky.

So you cannot just cut 67 times as the market was pricing at the beginning of the year.

What do you make of the staggering that we may see in rate cuts going forward?

Christian?

Yeah, I think central banks will have the room to cut, but we are a bit cautious that there are many cuts to come because I also think we are not in a situation where the central banks are fearing a massive inflation coming up.

And hence you see a full cutting cycle on the opposite right?

We are seeing inflation is quite sticky.

The labor market as you just mentioned, not only in the US but the also in Europe is quite sticky stable, which by the way is not the worst news.

So from that perspective, why would you cut so much as a central bank?

So we think over time and maybe that's one year time horizon here, I'm talking about, we could imagine that central banks like the fed, like the ECB are cutting three times over the next 12 months.

So that's a little bit of our projection.

Well, I I also want to talk to you about the global election picture and the volatility that that could cause for markets.

It did seem like the French election outcome, particularly the snap election move from Macron did take people by surprise.

Which upcoming election globally are you telling clients to prepare for, to not be taken by surprise for the potential outcomes?

Yeah, guess what?

I think it's the election in the US.

Although of course, there's a lot of interest here in the election in France.

You've seen spreads between French O ETS and German wounds are widening to literally record levels.

Last time you've seen them at these different, these spread in 2011.

So there was of course some anxiety about what happens to markets then, then there's the UK election coming up also very close on July 4th.

But uh what I discussed with clients and where they ask most is and remains the US election, I think quite clearly.

Well, it's interesting you bring up the US election in our final minute here.

I'm curious from your perspective.

I mean, every leader does kind of want to avoid a Liz trust moment where you bring out the bond vigilantes.

Do you think that could make leaders who do come in a little bit more moderate than what the market may be pricing in?

Yeah, I think, yes, absolutely.

Because you have seen our statements also from France, from different parties.

We will of course, need to look what's going on.

You see that in the UK.

And of course, U SI wouldn't be surprised to see, uh let's say very surprising, immediate reactions after.

So from that perspective, yes, I think there was clearly a learning and I would be really surprised if there's immediate action coming.

And by the way, in France, it's not even possible if there's a change in government, there needs to be some time to build some things in.

And from that perspective, I wouldn't call for next day, immediate volatility.

All right, we're going to have to leave it there.

Christian, thank you so much for joining us.

Great insight.

That was Christian Nolte.

He is the Global Chief Investment Officer at Deutsche Bank.