S&P Global Ratings’ Post

This week's Global Credit Bullets ➠ https://lnkd.in/drHjZBQe : The ECB held rates on Thursday as expected, but Lagarde surprised markets dovishly by pointing to continued disinflation dynamics. Furthermore, the US economy grew 3.3% in Q4, above surveys of 2% and primarily driven by continued strong consumption. #ecb #useconomy

Please see below the latest bullets from the Algebris global credit team #centralbanks

There has been some stability in EUR/USD this week as the geopolitical risks eased and some emerging signs of growth in the eurozone economy. Although the markets have priced in a June rate cut, it does seem that the ECB is managing communication carefully as to what happens next if there is a rate cut in June. The possibility of EUR/USD heading down to 1.05 again could be tested if the US data release today comes in on the softer side. EUR/USD could stall around current levels and, should the US data disappoint expectations, could break higher. Today, the ECB’s Economic Bulletin also supported the Euro after stating that the risks to economic growth remain tilted to the downside and that the Governing Council’s future decisions will ensure that the key ECB interest rate will stay sufficiently restrictive for as long as necessary.

A focus on inflation outlook and what that means for base rates globally will continue to drive credit markets in the second half of the year. Our latest Global Credit Monitor, penned by global co-authors across the platform, takes a look at market trends coming out of the second quarter: https://lnkd.in/eygNtYGQ

Paul Donovan's take on the significance of yesterday's ECB cut and the economic situation at the moment - many will be on tenterhooks I am sure, although remember central banking is a slow old game..... As expected, the ECB offered a 0.25-percentage-point rate cut, with general vagueness about the future. The rationale was also as expected—interest rates are following inflation lower. Applying the ECB’s logic to the likely path of the economy, another couple of rate cuts seem likely this year, but Lagarde was not prepared to signal that strongly at yesterday’s press conference. It is US employment report Friday. There are quite serious questions about the quality of this data—poor survey responses, poor assumptions about business creation, and a meaningful difference between the establishment and household surveys. Markets will react because that is the tradition. The expectation is for a boring report, with the key numbers essentially the same as last month. The range of forecasts is unusually tightly clustered, with only a couple of economists breaking away from the pack. Revisions are important, given the data quality problems. China’s May trade data showed stronger export and soft import growth. This is politically important with the US complaining about China’s “overcapacity” (meaning US households audaciously buy goods they want at prices they can afford). China’s exports to the US remain roughly 15% higher than US imports from China; unless a lot of ships are sinking in the mid-Pacific, that raises questions about data precision.

👌 Markets remain surprised by the underlying tone of resilience. Recent macroeconomic data has been far from pristine, but strong enough to shake up the bond markets. Yields on ten-year government bonds rose massively last month. In the USA, the increase from 4.3% to 4.7% also caused considerable fluctuations on the stock markets. In Europe, the swings in both bonds and equities were less pronounced. ☝ The growth outlook strengthened globally. The recent upturn in industry is remarkable. In view of this, it is surprising that inflation data in Europe (and Switzerland) landed within the central banks' target range. Looking back 18 months, we can see that inflation has been tamed but not yet sufficiently defeated everywhere. The last mile in the US economy remains a challenge. Although growth in the US was moderate in the first quarter of 2024, it will probably take a few more months for inflation to fall back to the “average inflation target of 2%”, particularly in the service sector. 👁️🗨️ Nevertheless, both the Europäische Zentralbank and later the US Federal Reserve will follow the Schweizerische Nationalbank example and begin to lower key interest rates in the course of this year. In addition to the continuing geopolitical challenges, it is above all the issue of sovereign debt that we see as the main risk going forward. 🙏 Based on the encouraging quarterly report, we assume that the global sentiment will remain constructive in the coming weeks and months and that risk assets will withstand the geopolitical challenges. Both implied and realized volatility are likely to remain somewhat higher, as in April, compared to the first quarter. ✌ Finally and most important to know, there are fewer and fewer good reasons to be skeptical about the numerous capital market opportunities. 👀 But there remains the risk of a US debt crisis. Read more about it in our monthly report. #debt #debtcrisis #fed #ecb #inflation #disinflation

Global markets week ahead Prepare yourself for the week in markets with the key events of the week.👇 📅Tuesday, 20th 🇨🇳People Bank of China announces decision on its loan prime rate (LPR) serving as the pricing reference for bank lending. No change is expected but any surprise would further boost rising confidence in Chinese markets. 📅Wednesday, 21st 🇪🇺Consumer Confidence will demonstrate Eurozone consumers’ feeling about the direction of the block. Forecasted to increase slightly to -15.7. 🇺🇸FOMC meeting minutes will demonstrate what’s the broader outlook for rates following a hawkish stance from Chair Powell. Considering the rather hawkish minutes a dovish December meeting, policymakers are likely to have pushed back against immediate cuts. 📅Thursday, 22nd 🇪🇺CPI projected to fall slightly from last month to 2.8% on headline and 3.3% on core. Important reading for the ECB who has suggested it expects a temporary inflation bounce. 🇪🇺Manufacturing/Composite/Services PMIs expected to remain in contraction territory below 50 but bounce slightly from last month. Any beat will refrain the idea of immediate ECB cuts. 🇬🇧Manufacturing/Composite/Services PMIs will be important data points for the UK following last week’s disappointing GDP figures. 🇺🇸Manufacturing/Composite/Services PMIs will provide further evidence on the resilience of the US economy. All expected to remain in expansion territory above 50. In addition to the above, several FOMC members are due to speak which can create volatility. Overall, a quieter week compared to last week with Fed minutes and Eurozone inflation data being the key events for the week. Have a great trading week! 👊 #markets #weekahead #economic #data #inflation #interestrates #investing

The upward trend in the terminal rate for the U.S. signals market anticipation of a more aggressive interest rate stance by the Fed, likely in response to persistent domestic inflationary pressures or a robust economic outlook relative to other regions. In contrast, the sharp decline for the ECB suggests markets foresee a more dovish approach, possibly due to weaker economic conditions or a strategic focus on stimulating growth. This divergence, referred to as U.S. decoupling, could lead to a stronger dollar as higher interest rates attract capital flows into dollar-denominated assets, potentially exacerbating trade imbalances. The contrast in central bank policies might further induce volatility in currency exchange rates, affecting multinational companies' earnings and international investment strategies. The trajectories imply different paths for economic recovery and resilience, where the U.S. might experience tightening financial conditions while Europe could witness continued monetary support, influencing investors' risk assessments and allocation decisions. #interestrate #fed #ECB source: robin brooks

ECB to Gradually Ease Monetary Policy Amid Inflation Concerns 📉💶 📊 European Central Bank (ECB) Governing Council member Klaas Knot announced plans to gradually ease restrictive monetary policies, signaling a possible rate cut in June. Knot emphasized the importance of a cautious approach to ensure inflation remains under control. This shift comes as markets and economists anticipate the first rate cut in the current cycle, likely at next week’s meeting. 🔍 Key Insights: >>Monetary Policy Shift: ECB is poised to ease policy rates gradually to less restrictive levels. >>Market Expectations: Markets have priced in two rate cuts this year, starting in June, with economists predicting up to three cuts. >>Data-Driven Decisions: Future rate cuts will depend on inflation expectations, economic data, and ECB projections. 💼 Implications for Investors: >>Eurozone Opportunities: The anticipated rate cuts may provide a favorable environment for investments in the eurozone, particularly in sectors sensitive to interest rate changes. >>Inflation Watch: While goods inflation has eased, services inflation and wage growth remain concerns, underscoring the need for vigilant monitoring. >>Strategic Positioning: Investors should consider positioning themselves to benefit from potential market adjustments following the ECB’s policy changes. 📉 Stay informed about the ECB's monetary policy decisions and their potential impact on the markets. Connect with us to explore strategic investment opportunities that align with these evolving economic conditions. Source - CNBC #Investing #ECB #MonetaryPolicy #EurozoneEconomy #Inflation #InterestRates #FinancialMarkets #InvestmentStrategies #EconomicGrowth #LeadGeneration #MarketOutlook #FinancialPlanning

Big week ahead as global economies across Asia, Europe, North & South America release economic data which will hint as to where the rates might be headed. Excellent read on the same below ;