Macro Minutes

The question on everyone’s mind is when central banks will start cutting rates. Over the past month, market pricing has progressively gravitated from a near certainty that the BoC and Fed would cut by June to now under a 50% chance. In the UK the pricing for a June cut is higher than a month ago but less than two weeks ago, while for the ECB the market has been resolute in pricing a June start date.

Participants:

• Jason Daw (Desk Strategy), Head of North America Rates Strategy
• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Lori Calvasina (Research),Head of U.S. Equity Strategy

Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

While markets are parsing through central bank communication for the timing and pace of rate cuts, the future of central bank balance sheets is increasingly in focus as well. What will happen with quantitative tightening? And what will balance sheets look like in a future steady state?

Participants:

• Simon Deeley (Desk Strategy), Canada Rates Strategist
• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Robert Thompson (Research), Australia Macro Rates Strategist

Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

It appears that markets have retraced some of their expectations for central bank action much closer to where speakers are guiding investors - in other words, we are trading much closer to what most people would consider 'fair value'. We sense a long bias in the fixed income markets and the question whether this is a sign of things to come offers itself. Meanwhile, FX markets are trading sideways and question about what can break the lethargy should be asked.

Participants:

• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Jason Daw (Desk Strategy), Head of North America Rates Strategy
• Gordon Scott (Desk Strategy), Euro Area Economist
• Elsa Lignos (Desk Strategy), Head of FX Strategy

Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Markets came into 2024 pricing in aggressive central bank cutting cycles. But continued resilience in growth and labor market data, along with some recent wobbles in the downward march of inflation has markets (and policymakers) pumping the brakes.

Participants:

• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Michael Reid (Desk Strategy), US Economist
• Simon Deeley (Desk Strategy), Canada Rates Strategist
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics

Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

The narrative from central banks has decidedly shifted from the risk of further tightening to signaling the next move will be lower. To paraphrase the message Powell gave us last week – we have confidence, and our confidence has increased that inflation will meet our objective, but we need more confidence before we start to cut. With central banks expecting a soft landing, they are gently easing into the easing cycle. When will central banks have enough confidence to pull the trigger & where will policy rates ultimately land?

Participants:

• Jason Daw (Desk Strategy), Head of North America Rates Strategy
• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Cathal Kennedy (Desk Strategy), Senior UK Economist
• Su-Lin Ong (Research), Chief Australia Economist

Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Focus continues on the timing and depth of central bank rate cuts as they try to engineer soft landings for economies across the globe. Central bank balance sheets and QT end timing in different jurisdictions have become increasingly topical as well. How do equity markets navigate this uncertain environment?

Participants:

• Simon Deeley (Desk Strategy), Canada Rates Strategist
• Izaac Brook (Desk Strategy), US Rates Strategy Analyst
• Michael Reid (Desk Strategy), US Economist
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Lori Calvasina (Research), Head of U.S. Equity Strategy

Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Bond markets and equity markets have rallied sharply at the tail end of 2023 essentially based on a ‘soft landing’ scenario that sees inflation back at target as early as Q2 2024 whilst growth is weakening but not descending into a fully-fledged recession. This allows global central to cut rates – according to current market pricing – as early as March/April and will see up to 150bp of rate cuts before the year is out from the Fed and ECB respectively with other central banks hard on their heels. That being said, early in 2024, most parts of financial markets struggled to continue where 2023 left off – and we think for good reasons. Incoming data was not as weak as some might have hoped for – particularly in Europe – central bank speakers have been rowing back some of the dovish rhetoric and the usual and fully expected bond supply wave seems to leave some footprints in markets nevertheless. 10y bond yields have risen some 25-30bp since the low just after Christmas and credit as well as equity markets have given back some gains already.

Participants:

• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Gordon Scott (Desk Strategy), Euro Area Economist
• Jason Daw (Desk Strategy), Head of North America Rates Strategy
• Andrea Marcheggiano (Desk Strategy), Director Capital Markets Advisory

Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

As 2023 comes to a close, we shift focus to what to expect in 2024, with year-ahead outlooks released for Europe, the US, and Canada last week. Will macro data show a clear direction towards reaching the 2% inflation target? How soon will central banks cut? These questions and more will be the focus of this edition.

Participants:

• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Simon Deeley  (Desk Strategy), Canada Rates Strategist
• Santosh Sateesh  (Trading), Head of Credit Derivatives Trading

Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

The market environment over the last two weeks may be best described as chop. Yields have been bouncing around day-to-day but market narratives seem to be settling with year-end in sight.

Participants:

• Michael Reid (Desk Strategy), US Economist
• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Jason Daw (Desk Strategy), Head of North America Rates Strategy
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics

Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

The trends in markets since June - higher yields, lower equities, wider credit spreads - pulled a sharp U-turn over the past week. Lower bond yields have provided the impetus for a decent equity and credit rally. Listen to hear about where bond yields are headed from here and what it means for the equity market.

Participants:

• Jason Daw (Desk Strategy), Head of North America Rates Strategy
• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Michael Reid (Desk Strategy), US Economist
• Lori Calvasina (Research), Head of U.S. Equity Strategy

Research Analyst opinions are their published views, independent of those expressed by Desk Analysts