Market movers ahead
- Next week is set to be fairly quiet in terms of data releases and more focus will be put on speeches/political events.
- In the Fed, we believe the speech by William Dudley (the second most important person on the FOMC now) is likely to be the most interesting, with his reflections following the FOMC becoming more confident on the economic outlook.
- In the euro area, new developments on the German coalition talks are the main event. The parties have set themselves a deadline of 4 February to wrap up the coalition negotiations.
- In the UK, the most important event is the Bank of England meeting on Thursday, including an updated Inflation Report and a press conference.
Global macro and market themes
- Belief in reflation has fuelled central bank ‘normalisation’ pricing but is it too early?
- It may be but central banks are set to move slowly on rates in any case. The Bank of Japan, SNB and Riksbank are particularly wary about not throwing the ‘baby out with the bath water’ in this context.
- Movements in both the level and slope of yield curves plus hedging costs are key to understanding cross-border capital flows as ‘normalisation’ unfolds.
- EU fixed income may become increasingly attractive relative to US fixed income and eventually lure capital back to Europe. In our view, EUR support will follow.
