Morning Bid: Pondering the path of Fed policy
2024.05.08 01:03
A look at the day ahead in European and global markets from Kevin Buckland
The Federal Reserve and the enigmatic path of U.S. interest rates continue to dominate the market’s attention. And with no top tier economic data for a week – when CPI drops – the opinions of policymakers take added importance.
Investors have no shortage of Fedspeak to look forward to on Wednesday, with Vice Chair Philip Jefferson, Governor Lisa Cook and Boston Fed President Susan Collins taking the podium at various events.
Fed Chair Jay Powell suggested last week that the bias is still towards easing, and further tightening is not a topic of discussion as of now. But whether stubborn inflation and a robust economy will allow a rate cut this year has come into doubt, with Minneapolis Fed boss Neel Kashkari signalling as much on Tuesday.
The lack of conviction among investors is clear in the differing directions for the dollar and Treasury yields this week, with the former pushing higher while long-term rates retreat.
It’s a very different story in Sweden: The Riksbank is widely expected to embark on its rate-cutting cycle today, after signalling at its last meeting an intention to ease either this month or next.
Inflation is close to target, the economy has slowed sharply, and a weak currency has become a headache, leading analysts to pencil in a full percentage point of reductions to put the key rate at 3% by year-end.
The Bank of England announces policy on Thursday, and while no change is predicted this week, dovish bets have risen recently. Traders now price two quarter-point cuts this year, with odds for whether the first comes in June or August a coin toss.
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Wednesday’s data calendar is light in Europe, consisting mainly of some German factory numbers.
The corporate calendar is heavy by comparison though, featuring earnings from such names as AB Inbev, BMW (ETR:) and Continental.
Key developments that could influence markets on Wednesday:
– Riksbank policy decision
– Germany industrial production, industrial output; Italy retail sales (all March)
– Corporate earnings including AB Inbev, BMW and Continental
