European Markets: Desperately Seeking Rate Cuts

Following a brutal day in which the pan-Europe Dow Jones Stoxx 600 Index slid to its deepest decline since 1987, European stocks showed a sign of life Tuesday on hopes of interest-rate cuts from the world's leading central banks. Those hopes are high, given the Reserve Bank of Australia's surprise 1 percentage point rate cut overnight.

Here's what the pros have to say:

Morgan Stanley says the Fed may cut rates before its next scheduled meeting (October 29-30), and although coordinated action isn't likely, moves are "probable" by several G10 central banks. The firm sees 2009 global growth at 2.7 percent, a forecast that's down 0.8 percent from last month:

A global slowdown is now the consensus forecast. But its depth and length are still uncertain, and analysts may still be too optimistic about corporate profits at home and abroad. Likewise, while yield curves have steepened and the dollar has rallied significantly, both may continue to move as recessionary conditions spread.

BlackRock's Bob Doll weighs in (bold is mine):

We believe the entire global economy is sliding into a recession, marking the first time since the 1970s that both the U.S. and international economies would be in recession. Looking ahead, we expect developed economies will contract for two or three consecutive quarters. Emerging markets are likely to retain positive growth levels, but will slow sharply as well . . . Now that financial stresses are threatening the flow of credit to the corporate and household sectors, we expect most central banks to cut interest rates by about 50 basis points at some point soon. In particular, the European Central Bank, which raised rates in July, has been signaling that it will enact a rate cut. We are hopeful that the policy makers will act in a coordinated fashion, and expect that central banks in general will have a bias toward easing throughout the rest of this year and well into 2009.