Read on the Trading Floor - 07 Mar 2024

Today’s focus… ECB, BoJ, GBP...

Macro Themes At Play

Theme 1 - ECB will know a lot more in June

Theme 2 -  BoJ

Theme 3 - Two charts that demonstrate why locals are always so bearish GBP

Further reading and listening of note

Theme 1 - ECB will know a lot more in June

#1. Rates unchanged

#2. Policymakers did not discuss rate cuts at this meeting

#3. Good progress towards inflation target but more evidence needed to increase confidence that it is moving sustainably sub 2% target

#4. As expected, inflation forecasts drifted lower. 

• 2024 dropped from 2.7% to 2.3%, 2025 dropped from 2.1% to 2.0% and 2026 = 1.9%.

• Core rates now expected to be 2.6% in 2024, 2.1% in 2025 and 2.0% in 2026.

#5. Underlying inflation easing, but domestic price pressures remain high, largely due to strong wage growth. 

#6. All eyes on a June cut, with just under 4 priced in the curve by end 2024. 

#7. They want to wait for the crucial wage data that won't be known until May.

• ING - Lagarde opens the door slightly to June rate cuts

• Reuters - ECB cites good progress on inflation, needs more data

• ABN Amro - ECB laying groundwork for rate cuts

• Reuters - Market hopes are high that big central banks will cut rates around mid-year

• Nordea - ECB Watch: More than just forecasts needed

• Bloomberg - Traders Step Up ECB Rate-Cut Bets on Bleaker Economic Outlook

Apollo (link) puts things into perspective on both sides of the Atlantic... ECB before FED?

Theme 2 - BoJ

Momentum is a funny beast, with JPY benefiting from a spike in wages, government and BoJ speakers not standing in the way of a hike and of course the rally in US10s. Furthermore, middle of march is a seasonal low in USDJPY with potential repatriation flows ahead of the local year end. However when all is said and done, the BoJ will lift the policy rate from -0.1% to 0%.... that's it, after the euphoria of a hike out of negative territory will the cta carry models buy jpy yielding 0% or eur, aud, mxn, usd etc etc etc...  

• Bloomberg - Yen Gains With Bank Stocks as Wages, BOJ Remarks Boost Hike Bets

• Across The Spread by Weston Nakamura - What BOJ Thinks of Japan Wages and Negative Rates

• ZeroHedge - USDJPY Plunges As Soaring Japanese Wage Growth Sparks Surge in BoJ Rate-Hike Odds

• Russell Clark - THE BOJ AS A KEIRESTU

• ING - Where are we now directionally for the US 10yr?

USDJPY vs US 10s. 

Source: Tradingeconomics.com

Theme 3 - Two charts that demonstrate why locals are always so bearish GBP

Martin Wolfe's budget editorial in FT demonstrates the stagnant growth in the UK

• FT - Britain needs more than fiscal games

• FT - UK growth prospects barely changed by chancellor’s tax cuts

Bloomberg - UK Is ‘On Track’ for 4% Hit to Economy From Brexit, OBR Says

• The Office for Budget Responsibility said its long-running prediction is “broadly on track” to show a 15% fall in trade and a 4% reduction in the economy’s potential productivity compared to if the country had stayed in the EU.

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