Market Views

GLOBAL CREDIT BULLETS | Monday, 23 October 2023

US – Cautious Fed means steeper curves
Last week, Powell indicated that the Fed will be on hold at the upcoming November meeting but monitor data and potentially tightening thereafter. US data was very strong recently, but in absence of Fed action the yield curve steepened, and US 30Y reaching their highest level since 2017 at 5.13%. This week’s key focus will be on PMIs, home sales, durable goods orders and the Feds preferred inflation measure, PCE.

ECB Preview – Focus on the talk
Thursday’s ECB meeting is unlikely to see any policy changes, including the policy rate, minimum reserve requirements (MRR) or balance sheet policy. Focus on the press conference will be around any ongoing discussions around these matters, in particular raising MRR and active balance sheet sales, or the earlier halt to PEPP reinvestments. Additionally, the ECB will need to comment on the potential risk of rising energy prices for the European inflation outlook. Furthermore, the ECB will acknowledge that rates are in restrictive territory but maintaining an open data-dependent approach into Q4. Ahead of the meeting, the market will focus on Eurozone PMIs on Tuesday, which consensus expects slightly better at 47.4 versus 47.2 prior.

Poland – Path ahead
The three opposition parties Civic Coalition, Third Way and Left party are likely to form a majority government around Donald Tusk as the new prime minister, as the incumbent PiS party will not be able to gather a majority. This is a very positive outcome for Poland, which will return on a course towards EU friendly policy again but may take some time as the PiS and President Duda will drag out the government formation procedures. Further, the new government will be constrained by a presidential veto by Duda until the next presidential election in mid-2025. Fiscal spending and borrowing are likely to stay high, which in turn can weigh on Polish bonds and requires a more hawkish central bank.

Algebris Investments’ Global Credit Team

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