Taming inflation was still not enough to trigger a rate cut
Taming inflation was still not enough to trigger a rate cut in March
US five-year auction is tough, but Thursday's core PCE will be tame - what then? Potentially lower profits, but only temporary. The ECB takes center stage with Lagarde predicted to push back against an early cut. That might just mean avoiding speculation about timing altogether. What could be the bearish impetus if Lagarde disappoints the market
The 10-year yield rose back above 4.15%. We still think it will reach the 4.25% region as expectations of a March rate cut continue to ease. But Thursday is the day with the biggest reason for yields to test the downside. Our view is that if core PCE comes in as expected, it faces some downside to yields, as it confirms a healthy reading (2% inflation). But it needs to be better than expected to negate our tactically fundamental bearish view. If not, then we will go higher again, even if that has to wait until next week.
Regarding expectations of a first rate cut, prices have softened slightly from late last week with the likelihood of a first rate cut in April now around 70% from around 80%. In our view, that still looks high and is something that most analysts also expect the ECB to oppose in the press conference. At the same time, the market price for full easing this year has not changed much with a reduction of a little over 130 basis points.
US five-year auction is tough, but Thursday's core PCE will be tame - what then? Potentially lower profits, but only temporary. The ECB takes center stage with Lagarde predicted to push back against an early cut. That might just mean avoiding speculation about timing altogether. What could be the bearish impetus if Lagarde disappoints the market
The 10-year yield rose back above 4.15%. We still think it will reach the 4.25% region as expectations of a March rate cut continue to ease. But Thursday is the day with the biggest reason for yields to test the downside. Our view is that if core PCE comes in as expected, it faces some downside to yields, as it confirms a healthy reading (2% inflation). But it needs to be better than expected to negate our tactically fundamental bearish view. If not, then we will go higher again, even if that has to wait until next week.
Regarding expectations of a first rate cut, prices have softened slightly from late last week with the likelihood of a first rate cut in April now around 70% from around 80%. In our view, that still looks high and is something that most analysts also expect the ECB to oppose in the press conference. At the same time, the market price for full easing this year has not changed much with a reduction of a little over 130 basis points.
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