US – Fed on hold
The Fed will leave rates unchanged at 4.25-4.50% this Wednesday and provide no new forecast projections. Going into the blackout period, Fed speak had been mostly cautious, amid diverging signals of a slowing economy but resilient inflation. Last Friday’s labour market data beat expectations with NFP adding 177k jobs, above the 138k survey, while the unemployment rate stayed unchanged at 4.2%. Inflation expectations have been rising, most notably in the University of Michigan survey, which was already dismissed by Powell in the previous meeting. Last week’s first US GDP reading showed a fall in growth of -0.3%, in line with expectations but better than previously updated estimates below -1%. This week’s meeting will focus on developments since Liberation Day but is unlikely to offer many new insights amid the ongoing uncertainty around Trumps policy.
Monetary Policy – Europe in cutting mode
Trumps trade policy is broadly negative for Europe, so European central banks will continue lowering rates this week. The National Bank of Poland is expected to cut rates by 50 basis points to 5.25% on Wednesday, following a number of downside surprises to economic data, including inflation most recently. The NBP was one of the most hawkish central banks in Europe until late, and shifted materially dovish following Trump. Similarly, the Bank of England will lower rates by 25bp to 4.25% Thursday, amid a domestically slowing labour market and easing inflation.
China – Signs of hope
Relations between the US and China appear improving very marginally, as China said they’re evaluating the possibility of trade negotiations with the US. Trump claimed the two countries were already talking, but China had refuted this repeatedly. Any discussions will take weeks and months given the hardline stance of both countries, and we believe no news is bad news in the meanwhile as trade uncertainty weighs on markets, delays capex and ultimately hurts growth.
Algebris Investments’ Global Credit Team
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