In today’s briefing:
- BoE: Early, Often, but Probably Not Far
- ECB: Inflation Alarm Wakes Policy in 2022
- Alpha Bites: Take Profits on Recommendation as Rates Move in Opposite Directions in India and Mexico
BoE: Early, Often, but Probably Not Far
- The BoE delivered a 25bps rate hike to 0.5%. In a hawkish twist, four members dissented for a 50bps jump. They are likely to carry that into a March hike.
- Excess inflation squeezes policy tightening enough to balance future spare capacity in the BoE’s trade-off.
- Energy futures prices imply much lower inflation, which would not justify rates rising as far as markets price – i.e. there is internal inconsistency.
ECB: Inflation Alarm Wakes Policy in 2022
- High inflation and a tightening of capacity raise hawkish pressure on the ECB.
- President Lagarde has stopped ruling out a potential rate hike this year.
- We expect asset purchases to slow more swiftly than the ECB previously indicated and for deposit rate hikes to begin in Dec-22.
Alpha Bites: Take Profits on Recommendation as Rates Move in Opposite Directions in India and Mexico
- While EM rates on aggregate have moved up as US rates have risen, there is a fair degree of differentiation within EM; e.g., the divergence between India and Mexico.
- Rates in India climbed higher following the pro-growth budget, which increased borrowing needs, while yields rallied in Mexico following indications that the country has entered a technical recession.
- These idiosyncratic developments accelerated the divergence in rates between the two countries, allowing me to suggest taking profits on my Receive Mexico 5y vs Pay India 5y rate trade recommendation.
Before it’s here, it’s on Smartkarma
