The long end of the UK gilt curve saw significant volatility in November, with 10-year yields swinging sharply due to budget leaks and shifting fiscal signals. In contrast, short-term gilts remained more stable, anchored by expectations of a rate cut in December and a further cut in Q1 2026. While term-premium dynamics drove a broader […]
France’s surprise downgrade to A+, from AA-, underscores mounting fiscal strain and political fragmentation, with debt projected to reach 121% of GDP by 2028. The move sparked a sharp widening in OAT-Bund spreads, signalling heightened sovereign risk. Liquidity repercussions are were immediate: money market funds have cut French exposure, repo core collateral pools shed French […]
September’s FOMC meeting signalled a notable downward shift in the Fed’s expected future rate path, underscoring their dual mandate focus versus inflation alone. However, the market disagrees and is pricing in a far steeper downward path, reflecting expectations for a weaker economic backdrop than the Fed anticipates. We view risks to both sides of the […]
Amid tariff tensions and global uncertainty, macroeconomic data is beginning to shift. Globally, composite PMI data shows positive momentum, pointing to possible easing in downside risks to economic growth. Meanwhile, central bank policy divergence is becoming increasingly pronounced with the ECB and BoE on hold having front-loaded cuts earlier in the year, while the Fed […]
The U.S. labour market remains volatile, demonstrated by the sharp downward payroll revision of -258,000. Chair Powell acknowledged that the labour market is now “solid and in balance but subject to downside risks.” Despite the market now pricing in 59 bps of further cuts, we maintain our base case of just one by year-end.
Markets have been surprised by persistent positive economic data, but questions loom over how long this will last amid ongoing tariff uncertainty and geopolitical shocks. Beyond the July 9th trade deadline, attention will turn to the ECB and Fed meetings later this month, where both central banks are expected to maintain current rates. In the […]
Markets and Central Banks continue to navigate uncertainty caused by persistent economic and legislative ambiguity. The effects of tariff volatility and divisive broader policy noise compounds an already fragile macro backdrop, and we expect near-term data to remain mixed, leading to continued divergence in central bank policy trajectories.
The downturn in business sentiment, highlighted by weakening PMI data, demonstrates the continued uncertainty caused by geopolitics. Concern in the US over contracting growth, and possible stagflation is causing central bank policy divergence to become more pronounced. The ECB and BoE appear committed to easings, while the Fed remains cautious as they monitor resilience of […]
The announcement of Germany’s EUR 500bn infrastructure plan has boosted economic sentiment, as measured by the ZEW index, causing a surge in long-end bond yields, and signalling that markets now anticipate a shallower path for ECB rate cuts amid improving Eurozone growth prospects. Nonetheless, with inflation easing and growth still soft, we expect the ECB […]
Following U.S. Republican election wins in November, the U.S. Dollar and 10-year Treasury yield initially surged in expectation of pro-growth policies. However, as the administration escalated trade tensions with tariffs, sentiment has shifted, reflecting concerns over an economic slowdown and expected Federal Reserve rate cuts to offset potential damage.
January set the stage for a volatile year, driven by greater uncertainty and market momentum. Fiscal concerns, evolving trade policies and tech sector volatility increased yield fluctuations, underscoring the challenges ahead. This increasingly uncertain landscape for monetary policy requires a clearer outlook for growth and inflation, as well as the potential impact of the new […]
Markets anticipated gradual rate reductions in 2024 but central banks opted for a more cautious stance, reflecting their need for greater confidence in evolving economic conditions. The path divergence emphasises the complexities of forecasting monetary policy amid economic uncertainty, and we expect such challenges are likely to persist into 2025.
Central banks remain data dependant in achieving their 2% inflation target which may result in diverging monetary policy. Northern Trust Asset Management think the Bank of England may take the most cautious rate-cut path as inflation proves sticky. Meanwhile, the Bank of Japan remains a monetary policy outlier as they continue to exit decades of […]
Rising global geopolitical tensions are causing uncertainty that could affect markets through its impact on economic data and central bank policy. We believe the interest rate cut path is unlikely to change for the remainder of 2024, with the BoE and Fed cutting rates in November and the ECB and Fed cutting rates in December, […]
Renewing its concern for employment, the Fed significantly cut its rate expectations for 2024 and 2025, as reflected in its September dot plot. However, the market’s economic expectations reflect a gloomier economic outcome than the Fed’s and is pricing more aggressive rate cuts. We remain cautious on the evolution of risk to both sides […]
Market expectations for Fed rate cuts repriced on recent lower inflation data, weaker employment data and continuing geopolitical risks. Weakness in risk assets and an uptick in equity volatility has caused investors to seek the safety of U.S. Treasuries, which may well be distorting the actual expectation for easing, appearing more likely than it […]
Uncertainty in politics can cause markets to react, often increasing the risk premium leading up to the event outcome. This often settles as investors process the result and central banks should not be impacted in their rate cutting cycles. For the year, Northern Trust Asset Management expect two 25bps cuts from the FOMC, two […]
The BoE and Fed are jostling with stickier inflation prints impacting confidence that inflation is moving towards its sustainable target to warrant a rate cut. However, the ECB continues on a different path with several of its Governing Council members indicating a very probable June cut that aligns with both our view and the […]
The last mile is always the most difficult, and that’s certainly been the case for stickier than expected US inflation. As a result, markets amended expectations for the US first rate cut to December. Expectations for the magnitude of European and UK cuts have been reduced, but their expected timing has changed little.
Whilst central banks have been gaining confidence that their tightening cycles are taking hold on inflation, they remain steadfast on a data dependency approach and hesitant to reduce restrictive policy too soon. We believe central banks will continue to err on the side of caution and focus on rate cuts commencing in the second […]
Economic data has proven resilient this year, leading to a more cautious narrative from central banks and triggering markets to rethink the magnitude and timing of monetary policy easing. At the start of 2024, futures markets indicated that the first interest rate cuts would be as early as March. Now, they indicate May.
European and U.S. central banks have stressed in the latest round of meetings that it is too early to sound the victory bell on inflation given that indicators such as wage inflation remain sticky. We believe central banks need more convincing of inflation’s demise, meaning rate cuts may not come until mid-year.
Usage of an important Federal Reserve facility, the Reverse Repo Facility (RRP), has declined sharply. Increasing Treasury bill supply, competing demand for cash and rising average maturities in money market funds have contributed to the decline. This combined with tight year-end liquidity conditions caused a spike in the SOFR rates around the year-end turn, but we believe this is a temporary phenomenon and market participants should not draw any ominous conclusions.
