Macro Minutes

Expectations for Fed rate cuts this year are wavering as US economic data continues to come in hot. But that economic performance hasn’t necessarily been replicated in other regions. Will other major central banks feel pressure to keep in step with the Fed or start marching to the beat of their own drummers?Participants:Blake Gwinn (Desk Strategy), Head of US Rates StrategySimon Deeley (Desk Strategy), Canada Rates StrategistPeter Schaffrik (Desk Strategy), Head of UK/European Rates & EconomicsSu-Lin Ong (Research), Chief Australia EconomistResearch Analyst opinions are their published views, independent of those expressed by Desk Analysts

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 StrategyBlake Gwinn (Desk Strategy), Head of US Rates StrategyPeter Schaffrik (Desk Strategy), Head of UK/European Rates & EconomicsLori Calvasina (Research),Head of U.S. Equity StrategyResearch 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 StrategistBlake Gwinn (Desk Strategy), Head of US Rates StrategyPeter Schaffrik (Desk Strategy), Head of UK/European Rates & EconomicsRobert Thompson (Research), Australia Macro Rates StrategistResearch 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 & EconomicsBlake Gwinn (Desk Strategy), Head of US Rates StrategyJason Daw (Desk Strategy), Head of North America Rates StrategyGordon Scott (Desk Strategy), Euro Area EconomistElsa Lignos (Desk Strategy), Head of FX StrategyResearch 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 StrategyMichael Reid (Desk Strategy), US EconomistSimon Deeley (Desk Strategy), Canada Rates StrategistPeter Schaffrik (Desk Strategy), Head of UK/European Rates & EconomicsResearch 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 StrategyBlake Gwinn (Desk Strategy), Head of US Rates StrategyPeter Schaffrik (Desk Strategy), Head of UK/European Rates & EconomicsCathal Kennedy (Desk Strategy), Senior UK EconomistSu-Lin Ong (Research), Chief Australia EconomistResearch 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 StrategistIzaac Brook (Desk Strategy), US Rates Strategy AnalystMichael Reid (Desk Strategy), US EconomistPeter Schaffrik (Desk Strategy), Head of UK/European Rates & EconomicsLori Calvasina (Research), Head of U.S. Equity StrategyResearch 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 & EconomicsBlake Gwinn (Desk Strategy), Head of US Rates StrategyGordon Scott (Desk Strategy), Euro Area EconomistJason Daw (Desk Strategy), Head of North America Rates StrategyAndrea Marcheggiano (Desk Strategy), Director Capital Markets AdvisoryResearch 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 StrategyPeter Schaffrik (Desk Strategy), Head of UK/European Rates & EconomicsSimon Deeley  (Desk Strategy), Canada Rates StrategistSantosh Sateesh  (Trading), Head of Credit Derivatives TradingResearch 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 EconomistBlake Gwinn (Desk Strategy), Head of US Rates StrategyJason Daw (Desk Strategy), Head of North America Rates StrategyPeter 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 StrategyBlake Gwinn (Desk Strategy), Head of US Rates StrategyMichael Reid (Desk Strategy), US EconomistLori Calvasina (Research), Head of U.S. Equity Strategy Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Global yield curves have been moving higher and steeper despite new geopolitical risks and a dovish tilt in recent central bank rhetoric. Can bonds find some solid ground to stand on or do they still have further to fall?Participants:Blake Gwinn (Desk Strategy), Head of US Rates StrategyJason Daw (Desk Strategy), Head of North America Rates StrategyGordon Scott (Desk Strategy), Euro Area EconomistRobert Thompson (Research), Macro Rates Strategist* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Bond markets keep pushing higher and curves steeper - but why? It appears that a combination of better than expected macro data and central banks communicating that rates will be held around present levels for longer than expected is leading to a repricing. The risk is that this not only continues but also takes hold of other markets, notably in the European time zone, where only a small amount of the rate cuts have been repriced as of yet. Positioning and developments in the Yen market are also making investors in Europe and the US jittery.Participants:Peter Schaffrik (Desk Strategy), Head of UK/European Rates & EconomicsIzaac Brook (Desk Strategy), US Rates Strategy AnalystSimon Deeley (Desk Strategy), Canada Rates StrategistRobert Thompson (Research), Macro Rates StrategistAdam Cole (Desk Strategy), Chief Currency Strategist* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

The main story in financial markets is fixed income and the relentless surge in yields. We explore why yields have been rising and curves steepening, whether this trend can continue, or what are the necessary ingredients for a turnaround.Participants:Jason Daw (Desk Strategy), Head of North America Rates StrategyBlake Gwinn (Desk Strategy), Head of US Rates StrategyLori Calvasina (Research), Head of U.S. Equity Strategy Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics Adam Cole (Desk Strategy), Chief Currency Strategist* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

We have a number of central bank events on deck, with the ECB meeting this week, followed by the Fed and BoE next week. Overall, it seems like it’s coming up on closing time for global hiking cycles, but major central banks may be looking to get one last round of hiking in before the end.Participants:Blake Gwinn (Desk Strategy), Head of US Rates StrategyCathal Kennedy (Desk Strategy), Senior UK EconomistSimon Deeley (Desk Strategy), Canada Rates StrategistAdam Cole (Desk Strategy), Chief Currency StrategistSu-Lin Ong (Research), Chief Australia Economist* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Ouch! Bonds have been burned in low liquidity summer markets, adding to the pain (total return losses) of the past two years. The move in bond yields is not unjustified based on fundamentals (now) but the level seems unsustainably high for the future evolution of macro. But can bonds rally in the face of a positioning overhang?Participants:Jason Daw (Desk Strategy), Head of North America Rates StrategyBlake Gwinn (Desk Strategy), Head of US Rates StrategyPeter Schaffrik (Desk Strategy), Head of UK/European Rates & EconomicsAlvin T. Tan  (Desk Strategy), Asia FX Strategist* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

With key central bank meetings due over the coming weeks at the same time, as economic sentiment data is weakening, the question of 'How Long Will It Take?' until rate hikes feed through into the real economy has become more prominent again lately. Meanwhile, the very same question is also asked in China, with the opposite effect in mind. In this episode, we preview the upcoming rate decisions and add our thoughts on the 'how long' question.Participants:Blake Gwinn (Desk Strategy), Head of US Rates StrategyPeter Schaffrik (Desk Strategy), Head of UK/European Rates & EconomicsSimon Deeley  (Desk Strategy), Canada Rates StrategistCathal Kennedy (Desk Strategy), Senior UK EconomistAlvin T. Tan (Desk Strategy), Asia FX Strategist* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

A number of global fixed-income markets have broken higher as central banks are still left to deal with tight labor markets and core inflation that is not falling fast enough for comfort. Can the sell-off continue, overcoming lingering fears of an economic slow-down or will yields quickly pull back down into old ranges?Participants:Jason Daw (Desk Strategy), Head of North America Rates StrategyMichael Reid (Desk Strategy), US EconomistBlake Gwinn (Desk Strategy), Head of US Rates StrategyPeter Schaffrik (Desk Strategy), Head of UK/European Rates & EconomicsLori Calvasina (Research), Head of U.S. Equity StrategySu-Lin Ong (Research), Chief Australia Economist* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Groundhog Day was a film about the same day repeating itself over and over, which has some parallels to what is happening in markets - policy rates higher, curves flattening, equities unfazed, and USD-CNY marching higher. Will this cycle continue or be short-circuited? That probably depends on what market or country you are talking about.Participants:Jason Daw (Desk Strategy), Head of North America Rates StrategyBlake Gwinn (Desk Strategy), Head of US Rates StrategyLori Calvasina (Research), Head of U.S. Equity StrategyPeter Schaffrik (Desk Strategy), Head of UK/European Rates & EconomicsAlvin T. Tan (Desk Strategy), Asia FX Strategist* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Hiking cycles are extending or re-starting later in 2023 than many expected for the BoC and Fed, with the terminal points heavily dependent on the evolution of data in the near term. The BoE is similarly very data dependent, while the ECB looks set to extend its cycle further. Developed market economies have generally "outperformed" in the first half of the year, with expected weakness failing to materialize in hard data (so far).Participants:Blake Gwinn (Desk Strategy), Head of US Rates StrategyCathal Kennedy (Desk Strategy), Senior UK EconomistSimon Deeley (Desk Strategy), Canada Rates StrategistAdam Cole (Desk Strategy), Chief Currency StrategistAdam Jones (Trading), Head of US Credit Algo Trading* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts