Market Views

GLOBAL CREDIT BULLETS | Monday, 18 September 2023

Fed Preview – Hawkish Hold
The Fed is expected to hold rates steady at 5.5% this Wednesday, but to maintain a tightening bias. Their updated projections are likely to show one more hike in 2023, higher growth in 2023/24 but aim to stabilize inflation. US activity data continued strong last week, with improved retail sales and industrial production. Notably, the Empire Manufacturing Index surged by over 20pts back into positive territory. August’s CPI rose to 3.7% from 3.2% YoY, mainly driven by higher energy prices, but sticky components like rents continued to fall from 0.5% to 0.4% MoM.

ECB Review – Dovish Hike
The ECB likely delivered their final hike of this cycle, by raising rates by 25bps to 4%. Updated projections showed growth and core inflation downgrades, while headline inflation in 2024 was revised up due to rising energy prices. Rates rallied strongly as a result, but reversed the moves the following day as hawks contemplated the possibility of additional rate hikes or adjustments to the balance sheet. Friday’s PMIs will be the next key hurdle for the ECB to provide insight into the economic trajectory, and potentially shifting the focus of the next discussion from rate hikes to rate cuts.

Global Central Banks – Moves across the spectrum
The BoE is likely to hike rates by 25bp to 5.5% following generally softer data, albeit at continued very high levels (e.g. wage growth still >8%, services inflation still >7%). In contrast, Brazil’s BCB is likely to cut rates by 50bp to 12.75% and afterwards has room for more, given inflation only stands at 4.61% YoY in the latest IPCA print. The BoJ remains stuck between negative rates and a weak yen, against which Ueda is likely to push back to keep a further depreciation in check. Rates will likely remain unchanged until at least year-end or Q1-24, with no expected adjustment to YCC before October.

Algebris Investments’ Global Credit Team

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