Macro Minutes

For macro and bond investors, 2024 has been challenging. Despite central banks cutting rates, bond yields have remained high, and country-specific macroeconomic factors have heavily influenced allocation strategies. Looking ahead to 2025, returns in global fixed income will largely depend on the trajectory of the U.S. economy and the extent of the Federal Reserve's easing measures. Macro nuances are expected to continue playing a critical role in cross country performance.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 & EconomicsSu-Lin Ong (Research), Chief Australia EconomistRobert Thompson (Research), Australian Macro Rates Strategist * Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

The ECB delivered another cut today and there is more to come, the BoC is primed to start cutting in 50bp increments and do a lot over the cycle, the Fed should cut further but only a little bit, and China has recently delivered a lot of stimulus. The RBNZ has recently cut 50bp and could follow up with materially more. But the outlier is the RBA who is sitting patiently and doesn’t appear ready to cut anytime soon. So while most centrals are moving in the same direction there is notable differences in the speed and magnitude of cuts across countries.Participants:Jason Daw (Desk Strategy), Head of North America Rates StrategyPeter Schaffrik (Desk Strategy), Head of UK/European Rates & EconomicsBlake Gwinn (Desk Strategy), Head of US Rates StrategySu-Lin Ong (Research), Chief Australia EconomistAlvin T. Tan (Desk Strategy), Asia FX Strategist* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

The Fed delivered a super-sized rate cut to the start of the cycle last week. More likely they go back to smaller 25bp moves if labour data remains resilient. But another large move is not out of the realm of possibility. We think the BoC is on course for 5 straight 25’s but they could front-load with a 50bp move in October or December if growth data shows a large undershoot vs potential. The BoE and ECB seem set to take things slow, but a larger cut is a non-zero chance.Participants:Blake 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 & EconomicsElsa Lignos (Desk Strategy), Head of FX Strategy* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

With the Fed and ECB set to follow the BoC’s lead with 25bp cuts of their own, a number of the major central banks are now back in sync. So far, these central banks look to be proceeding gradually along their respective cutting paths, but the possibility of larger cuts still loom should economic conditions start to deteriorate. Meanwhile, others are proving even more cautious, with the next cut from central banks such as the RBA and BoE even further afield.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

There are nuances in every economic cycle but this one continues to feel different. Central banks are firmly in easing mode - the Fed will join the rate-cutting party in September. The timing and magnitude of rate cuts is the main topic for financial markets and is highly dependent on the assessment of the economic cycle. Listen to our macro and rates experts discuss the US, Canada, and European economies and central bank outlooks. Participants:Michael Reid (Desk Strategy), US Economist Blake 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 & EconomicsResearch Analyst opinions are their published views, independent of those expressed by Desk Analysts

We have seen very large market moves triggered by the US labour market report over the last few days that have also led to quite a few market participants changing their view on Fed rate cuts. We take a deeper dive into the data, highlight important questions that need answering and reiterate our rates call for the Fed and all other major central banks. We do not feel the need to make changes at this stage!Participants:Peter Schaffrik (Desk Strategy), Head of UK/European Rates & EconomicsBlake Gwinn (Desk Strategy), Head of US Rates StrategySimon Deeley (Desk Strategy), Canada Rates StrategistCathal 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

Markets have been pricing more rate cuts again on the back of somewhat weaker data releases, specifically in the US. Yet, central banks remain reticent in telegraphing rate cuts clearly. Can the latter change and make markets price in even more? Participants:Peter Schaffrik (Desk Strategy), Head of UK/European Rates & EconomicsBlake Gwinn (Desk Strategy), Head of US Rates StrategySimon Deeley (Desk Strategy), Canada Rates StrategistCathal Kennedy (Desk Strategy), Senior UK EconomistResearch Analyst opinions are their published views, independent of those expressed by Desk Analysts

Two G7 central banks have already cut – the ECB & BoC . Both should cut more as the year progresses while the BoE and Fed are likely to join the rate-cutting party later this year. At the other end of the spectrum is the RBA which is widely expected to keep the cash rate steady this year. Each country has its own nuances that will impact the timing and magnitude of policy changes, which we discuss in this podcast under the theme of green lights (i.e. what makes them move), yellow (what creates confusion or a pause), and red lights (what could stop them dead in their tracks). Participants:Jason Daw (Desk Strategy), Head of North America Rates StrategyIzaac Brook (Desk Strategy), US Rates Strategy AnalystCathal 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

The BOC and ECB both kicked off long-awaited cutting cycles last week with questions about the depth and duration of these cycles likely to drive markets from here. But in other regions the case for pulling forward cuts is still somewhat weak. Where other central banks remain on hold, the trading environment might remain relatively rangebound into this summer.Participants:Simon Deeley (Desk Strategy), Canada Rates StrategistPeter Schaffrik (Desk Strategy), Head of UK/European Rates & EconomicsBlake Gwinn (Desk Strategy), Head of US Rates StrategySu-Lin Ong (Research), Chief Australia EconomistResearch Analyst opinions are their published views, independent of those expressed by Desk Analysts

Two developed market central banks have already cut - Riksbank and SNB - and the BoC, ECB and BoE should follow suit over the next couple of months. But the higher for longer theme is dominating the US rates market. The divergence in macro and policy is the major theme in rates markets. The other important theme is that despite Fed cuts being priced out, risk assets continue to perform well with the S&P making new highs and credit spreads at cycle tights.Participants:Jason Daw (Desk Strategy), Head of North America Rates StrategyIzaac Brook (Desk Strategy), 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

Markets have been ultra-sensitive to data for some time now, going back to market pricing for hikes starting in late 2021. More recently, several strong US inflation prints have de-railed the potential for upcoming Fed cuts, while upside surprises have occurred in Canada, the UK and Australia in the recent weeks. Will these data points be determinant for upcoming central bank decisions? What important releases are to come?Participants:Simon Deeley (Desk Strategy), Canada Rates StrategistMichael Reid (Desk Strategy), US EconomistCathal Kennedy (Desk Strategy), Senior UK EconomistSu-Lin Ong (Research), Chief Australia EconomistLuis Estrada (Desk Strategy), LATAM FX StrategistResearch Analyst opinions are their published views, independent of those expressed by Desk Analysts

The latest resilience in the US has kick started a debate about how much other regions that appear to not show the same kind of underlying strength can diverge from the Fed and cut rates regardless. We see the best chances of that happening in Canada, but also provide updated views on the BoE, ECB and RBA. Meanwhile, the gyrations in the JPY keep investors on their toes and we add our voice to the mix of what lies in store.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 StrategyCathal Kennedy (Desk Strategy), Senior UK EconomistSu-Lin Ong (Research), Chief Australia Economist Blake/Izaac: FOMCElsa Lignos (Desk Strategy), Head of FX StrategyResearch Analyst opinions are their published views, independent of those expressed by Desk Analysts

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