Market Views

GLOBAL CREDIT BULLETS | Monday, 3 June 2024

ECB Preview – Hawkish cut
The ECB will be the third G10 central bank to lower rates on Thursday, by 25bp to 3.75%. The cut has been widely anticipated and is almost fully priced by markets, but the outlook thereafter is tricky, as highlighted by last week’s inflation figures. Headline and core HICP rose by 0.2% to 2.6% and 2.9% respectively, while the services subcomponent rose by 0.3% to 4.1%. Goods disinflation continued, falling by 0.1% to 0.8%, but was not sufficient to counter the rise from services. As a result, we believe the ECB will revise their quarterly inflation projections higher, causing an awkward backdrop for the cut. Markets have almost fully removed prospects for a July cut, and also only see just more than 2 cuts in total by year-end. As things stand today, we believe this ECB cut may soon be viewed as a policy mistake.

US Economics – Payrolls set the tone ahead of Fed
Friday’s Nonfarm-Payrolls will kick off a new round of US data, with consensus expecting little change from last month at 180k. Further indicators are likely to underline that the labour market has moved into better balance, but given the volatility in NFP prints and revisions, we believe the greater reaction in markets would come from a downside surprise, with CTA funds still short Treasuries. Last week’s PCE inflation concluded the previous round of data, and at 0.25% core MoM came in line with expectations. The Fed’s favourite inflation measure has now averaged 3.5% over the past three months, on an annualised basis, and confirms insufficient progress for the Fed to start cutting.

Turkey – Turnaround story
Turkey’s recent orthodox policy shift is seen as very positive by investors, as we learned during our research trip to Istanbul last week. The pace of de-dollarization and switch into Lira deposits is happening faster than expected, while rising USD reserves are making the economy more resilient. Investors are concerned whether policy is sufficiently tight to quell strong demand, but inflation is expected to fall quickly post its likely May peak around 75%. The summer months will bring additional inflows to the country from tourism, giving the market confidence to participate in the carry trade.

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.