Market Views

GLOBAL CREDIT BULLETS | Monday, 11 March 2024

US Economy – Inflation is what matters
Last Friday’s employment data had a dovish flavour, despite the headline NFP figure surprising to the upside at 275k versus 200k consensus. January’s blockbuster print of 353k was revised down to 229k. Average hourly earnings rose only by 0.1% MoM, 10bps below survey and reversing the 0.5% jump in January. The unemployment rate rose to 3.9%, 20bps above survey – the highest number since January 2022. Given the Fed’s focus on inflation over growth, the drop in earnings continued the dovish narrative ever the ISM surveys surprised to the downside. Tuesday’s core CPI is expected to rise by 0.3%, down from Januarys strong 0.4% with key focus on whether Januarys data was a seasonal fluke, of the start of a new upturn.

ECB Review – June rate cut a done deal
The ECB left rates unchanged but revised inflation forecasts lower, as expected. HICP headline inflation is projected to reach the 2% target in 2025, while core HICP will be at 2% only in 2026, down 0.1% each from the prior forecasts. Lagarde pencilled in June as the most likely date for the first rate cut, saying there will be a “lot more” data available by then, but only “a little more” by April. Sources post meeting discussed a second cut in July to persuade doves wanting an April cut. Citi’s economic data surprise index is rising and now stands at +50, indicating the ECB will be in no rush to lower rates.

Japan – Exiting negative rates
Stronger wage data from Japanese wage negotiations brought BoJ rate hikes back into focus, causing the JPY to rally 1.4% over the week and lifting 2Y JGB yields to new highs of 0.19%. BoJ-speak has turned more optimistic about an emerging wage-price spiral, and more members of the committee are now open to lift rates by 0.1% to exit negative interest rate policy (NIRP) by March. Normalising policy that way should be relatively straight forward, but the policy path beyond depends on the domestic inflation and growth outlook of Japan. In a world where the US economy stays resilient and the USD strong, the path for Japanese rates should be higher.

Algebris Investments’ Global Credit Team

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