Monetary Policy

The worsening US consumer credit data has largely fallen under radar. A few weeks ago, November 2023 data came in at $23.8bn representing a substantial increase from October’s $5.77bn and September’s $10.9bn.

With most central banks presumably at highs in terms of monetary policy rates during the current cycle, the focus has rightly shifted to the timing of the first cut. 

We recently highlighted in our 2024 outlook our expectations of significant inflows into fixed income to be an important technical driver of performance in the year ahead.

The tightening of monetary policy has given rise to concerns about the health of mortgage markets due to higher interest rates , leading to questions about the expected resilience of residential mortgage-backed securities (RMBS).

The direction of monetary policy rates going forward is more clear, following the Federal Reserve's release of its new summary of economic projections and the dovish remarks of Jerome Powell.

After a horrible year for financial markets in 2022, the macro-outlook for 2023 had a lot of consensus views, with most predicting a much better year ahead, helped by supportive rate cuts from central banks and positive returns from both government bonds and credit.  

Following yesterday’s publication of the quarterly Senior Loan Officer Opinion Survey (SLOOs) by the Fed, it revealed how lending conditions have evolved over the quarter amongst US banks.

George Curtis breaks down the latest developments following this week’s Quarterly Refunding Announcement and the Treasury Borrowing Advisory Committee update.

Yesterday, market participants received two important reports about the state of the economy in the Eurozone. Firstly, the October Markit PMI – Purchasing Managers’ Index - reports showed a continued deterioration in growth in the manufacturing as well as the services sector.

This morning the ONS published its monthly update on the UK labour market. Of all the G7 countries, the UK has had the most puzzling labour market dynamics post pandemic, as we discussed in a previous blog.

Fixed income investors have gone through a stressful few weeks. Since the beginning of September, government bond yields have moved sharply higher, causing spreads to widen and returns to worsen across the board. 

As we commence upon earnings season, we will be paying close attention to another round of updates from the US regional banks, particularly within the context of a “higher-for-longer” rate environment. With wider adoption of a soft-landing view, as well as a higher treasury yield backdrop, we explore what implications this has for the US regional banks.