Rate cuts by year-end
- Fed: 43 bps (97% probability of no change at the upcoming meeting)
- ECB: 16 bps (86% probability of no change at the upcoming meeting)
- BoE: 47 bps (82% probability of rate cut at the upcoming meeting)
- BoC: 12 bps (96% probability of no change at the upcoming meeting)
- RBA: 56 bps (87% probability of rate cut at the upcoming meeting)
- RBNZ: 35 bps (72% probability of rate cut at the upcoming meeting)
- SNB: 7 bps (86% probability of no change at the upcoming meeting)
Rate hikes by year-end
- BoJ: 22 bps (96% probability of no change at the upcoming meeting)
Fading growth fears since the April 9 pause in tariffs has been the main theme up until now. Traders kept on scaling back their dovish bets as the soft data improved and trade war fears kept on being faded.
We have now kind of reached the peak in this trade as more deals are getting striked and everyone now expects a 10-20% tariff range. The recession folks got it wrong once again as they didn’t factor in the change in conditions that would have happened once tariffs fears dissipated.
We can say that this has been the “easy” trade but things will get trickier going forward. The de-escalation in trade war coupled with expansionary fiscal and monetary policies helped to counteract the negative impact on growth from tariffs.
The trend should continue but the momentum will likely slow down now as most stuff is priced in and we will likely need new catalysts to get things going.
An important one could be more evidence that inflation is not picking up as it would give the Fed more conviction to cut rates. On the negative side, given the overstretched positioning in risk assets, the market could now be more fragile to growth scares and we could see bigger and faster selloffs
