ECB – Data-dependent, not date-dependent
The ECB held rates on Thursday as expected, but Lagarde surprised markets dovishly by pointing to continued disinflation dynamics, declining wage dynamics and strong monetary policy passthrough. She also mentioned that the ECB will have gathered “a lot of information” in the next few months, suggesting it may not be necessary to wait with cuts until June, after final wage data is available. Previously released PMIs improved slightly from 47.6 to 47.9, and the ECB Bank Lending Survey showed marginally improving expectations for credit standards and loan demand. Yet, Lagarde’s message was stronger, and rates markets brought cut expectations forward again, seeing 85% chances for a cut by April, and rates falling to 2.2% by December 2025.

US – Stronger growth but lower inflation
The US economy grew 3.3% in Q4, above surveys of 2% and primarily driven by continued strong consumption. Core PCE inflation fell however, from 3.2% to 2.9% in December. On a 3-month annualised basis, core PCE stands at 1.5%, while the 6 month annualised figure is at 1.9% for the second month in a row. With these higher-frequency inflation numbers at target, Powell needs to find a balance against only slowly loosening labour markets and a healthy consumer at this Wednesdays Fed Meeting. If the Fed wants to cut in March, they must remove their tightening bias from the statement this month to set the stage. This week’s labour market data will only be partially available before: NFP is on Friday and expected to fall from 216k to 178k.
Our focus ahead lies on Wednesday’s Treasury Quarterly Refunding Announcement, where the Treasury is expected to increase issuance sizes again but focus on shorter maturities, which should result in continued low term premia and be beneficial for risk assets.

Algebris Investments’ Global Credit Team