Market Views

GLOBAL CREDIT BULLETS | Monday, 5 February 2024

Fed – Habemus cuts (just not in March)
The Fed delivered a balanced message in their meeting last week, acknowledging the progress in inflation but pushing back against early cuts. Powell said March cuts were “not the base-case”, but kept all options on the table while allowing himself to gain more confidence that inflation is anchored at target. While he was unable to define what exact progress needs to be seen, it is clear that the Fed is comfortable with stronger growth as long as inflation doesn’t reaccelerate. Markets trimmed bets for March cuts following the meeting and strong labour market data, now down to 16%.

US data – Strong turns stronger
US economic data continues to be strong. On Friday, January non-farm payroll printed at +353k, almost twice consensus estimates and above the top end of the range. Three-months job creation was revised higher by more than 60k, changing the perceived picture of the US economic landscape over the past quarter. The unemployment rate was slightly lower than expected at 3.7%. After 4Q23 GDP was also stronger than expected, it is clear that US data continue to surprise on the upside despite relatively low inflation print. Powell clarified this does not affect the outlook for cuts near terms, as real rates and inflation are more important. Persistent economic strength may still ultimately affect the level the Fed ends up cutting too, remaining the key risk to rates over the quarters ahead.

Eurozone CPI – Steady disinflation progress
Eurozone headline and core CPI for January fell 0.1% YoY, to 2.8% and 3.3% respectively. Non-energy industrial goods showed continued disinflation, at -2.4% MoM and 2.0% YoY. Services inflation stayed sticky at 4.0% YoY and drove the 0.1% upside surprise relative to consensus. This was the first upside surprise in five months and takes some pressure from early cuts for the ECB, who signalled in their recent meeting continued data dependence.

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.