Market Views

GLOBAL CREDIT BULLETS | Monday, 4 March 2024

ECB – How far can hawks fly
Last week’s Eurozone CPI fell back 0.2% from seasonally elevated January levels, but beat consensus, resulting in a mixed message for the ECB. February’s headline HICP was 2.6%, while core stood at 3.1%, 10bp and 20bp above expectations respectively. The ECB meets on Thursday and won’t take any policy action, but new forecasts will guide the markets rate-cut expectations. Growth projections for 2024 will likely be lowered from 0.8% in December, while inflation estimates should fall across the forecast horizon. Particular focus lies on the 2026 estimate for core inflation, which was previously still seen above 2%, but may now fall down to target. Recent ECB speak has shown divisions as to when the cutting cycle should begin, but consensus is mostly centred around June.

US – Data is back
This week kicks off February key US macro data and helps us to determine if January’s strong data was just a seasonal fluke or here to stay. The labour market is expected to loosen further, but payrolls are likely to remain strong with consensus expecting 190k jobs added. Friday’s ISM manufacturing unexpectedly fell from 49.1 to 47.8, despite predictions and leading indicators pointing to a rise. US 10y yields have sold off ca. 30bps since the start of the year, but if this set of data comes in weaker the market will be quick to jump back into government bonds.

China – Waiting for an impulse
The National People’s Congress kicks off on Tuesday and is in key focus for investors looking for growth stimulus from China. Premier Li Qiang is likely to point to a 2024 growth target around 5%, above consensus expectations for the year of 4.6%, while pointing to expansionary fiscal policy and support for the housing sector. The fiscal deficit at 3% of GDP and an inflation ceiling it 3% is the base-case, but language for more expansion or stronger reflation would be seen a bullish. Stimulus to date has only been served piece-meal, resulting in lagging equity markets and subdued sentiment. We look to the NPC for any turnaround.

Algebris Investments’ Global Credit Team

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