Market Views

GLOBAL CREDIT BULLETS | Monday, 29 January 2024

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

This document is issued by Algebris (UK) Limited. The information contained herein may not be reproduced, distributed or published by any recipient for any purpose without the prior written consent of Algebris (UK) Limited.

Algebris (UK) Limited is authorised and Regulated in the UK by the Financial Conduct Authority. The information and opinions contained in this document are for background purposes only, do not purport to be full or complete and do not constitute investment advice. Under no circumstances should any part of this document be construed as an offering or solicitation of any offer of any fund managed by Algebris (UK) Limited. Any investment in the products referred to in this document should only be made on the basis of the relevant prospectus. This information does not constitute Investment Research, nor a Research Recommendation. Algebris (UK) Limited is not hereby arranging or agreeing to arrange any transaction in any investment whatsoever or otherwise undertaking any activity requiring authorisation under the Financial Services and Markets Act 2000.

No reliance may be placed for any purpose on the information and opinions contained in this document or their accuracy or completeness. No representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information or opinions contained in this document by any of Algebris (UK) Limited , its members, employees or affiliates and no liability is accepted by such persons for the accuracy or completeness of any such information or opinions.

The distribution of this document may be restricted in certain jurisdictions. The above information is for general guidance only, and it is the responsibility of any person or persons in possession of this document to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. This document is for private circulation to professional investors only.

© 2024 Algebris (UK) Limited. All Rights Reserved. 4th Floor, 1 St James’s Market, SW1Y 4AH.