Vasileios Gkionakis
Following the BoE decision to keep the base rate at 5.25%, the rates market has re-priced lower. I argue further dovish re-pricing is still likely because the labour market is looser than headline unemployment shows, and house price declines will weigh on household consumption.
Bilal Hafeez, Viresh Kanabar
Dominique nailed it – the Fed finally acknowledged the US economy’s strength. The Fed stayed on hold, kept an extra 2023 hike, reduced the number of 2024 cuts from four to two, and kept the inflation trajectory unchanged but upgraded the growth trajectory.
Bilal Hafeez, Ben Ford
Momentum model signals sit in contrast to our view to fade CHF strength. They are also yet to get fully on board with our bullish USD basket trade (vs EUR, CHF and GBP).
Henry Occleston
We expect the BoE will hike by 25bp to 5.5% and signal that they are ready to pause thereafter. Recent data and the tone of policymakers have set the groundworks for such an outturn.
Vasileios Gkionakis
As of 8 September, the dollar had risen by 4.8% since mid-July, its largest gain over a 41-day period since mid-October 2022.
Vasileios Gkionakis
Idiosyncratic and relative-value (RV) trades are currently appealing. Look for monetary policy divergences (Bank of England repricing lower, rates re-pricing in CEE), sensitivity to ongoing muted Chinese growth, and energy prices.
Bilal Hafeez, Viresh Kanabar
ECB pulled off a dovish hike, but we see more to come. The ECB hiked by 25bps as Henry had expected for some time. They also increased their interest rate forecasts for this year and next, driven by higher energy prices.
Bilal Hafeez, Ben Ford
Momentum models are moving towards our view that GBP/CAD will trade lower over the next six months. They also back our bias to expect European equities to underperform US equities.
Bilal Hafeez, Viresh Kanabar
The quarterly Beige Book was released last week, continuing to point to strong growth, falling inflation and a loosening labour market. Here are our highlights on each point:
Bilal Hafeez, Ben Ford
Momentum models are moving towards our view that GBP/CAD will trade lower over the next six months. They also back our bias to expect European equities to underperform US equities.
Bilal Hafeez, Viresh Kanabar
US jobs data took centre stage. Last week, US jobs data dominated the market narrative, with JOLTS (Tuesday) and NFP (Friday) data pointing towards a slower labour market.
Bilal Hafeez, Ben Ford
Momentum models back our view to be long 10Y JGBs vs 10Y USTs (target: -400bps) and long EUR/CHF. They also back our bias to expect European equities to underperform US equities. They disagree with our view for GBP/CAD to trade lower over the next six months.
Bilal Hafeez, Viresh Kanabar
Powell stood his ground at Jackson Hole. Despite speculation and academic calls suggesting otherwise, Chair Powell reiterated his commitment to the 2% inflation target. He also stated that continued strong growth in the US could require additional policy tightening given inflation remains above target.
Bilal Hafeez, Ben Ford
Momentum models are supportive of our hawkish views for both the Federal Reserve and European Central Bank. They also support Ben’s view that there is little reason to turn short EUR/SEK yet.
Richard Jones
As with the rest of the G10 FX and rates space, Antipodean and Scandi markets have been rangebound in July-August as investors await a decisive September and Q4 for developed market central banks. We expect the rangebound price action to hold in Aussie, Kiwi, Norwegian and Swedish markets in the next week or two.
Bilal Hafeez, Viresh Kanabar
Last week, US retail sales beat expectations across the board. Advance retail sales rose +0.7% MoM versus +0.4% MoM expected, while the control group rose +1.0% MoM versus +0.5% MoM expected.
Bilal Hafeez, Ben Ford
Market Implications Momentum models are supportive of our hawkish views for both the Federal Reserve and European Central Bank. They also support Ben’s view that there is little reason to turn short EUR/SEK yet.
Richard Jones
G10 FX and rates markets are chopping around within ranges as investors await a busy September for developed market central banks. We expect the rangebound performances of July and August to hold in coming weeks.
Henry Occleston
As we had expected, July UK headline and core inflation beat expectations, driven by rises in rent prices. The BoE should not take this hawkishly. It is roughly in line with their estimates, and they are focused on the details.
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