There haven’t been many major changes since last week, but it’s important to see what the markets are expecting heading into this week’s major events.
RBNZ: Markets are pricing in a roughly 96% chance of a first cut from the bank at their August meeting. After their recent conciliatory trend, I don’t think there’s much that requires them to change much at this week’s meeting. So this could be a placeholder.
Fed: The odds of a cut or hold in June are about 50/50 as we head into US CPI this week. The chances of a drop in July, however, are still at 87%, so we will not have to wait very long to see the markets fully factor in a drop in July again. When it comes to things like positioning, I think a simpler trade this week would be missing from the data (in reference to the dollar).
BoC: Only 70% chance of a rate cut in June seems too low. A decent deceleration in CPI data, a decent absence in jobs data, and businesses saw a decent reduction in those expecting a CPI rise in the outlook survey companies. I think the Bank of Canada no longer has any reason not to adopt a more dovish policy this week.
ECB: Some participants seem overly enthusiastic about the ECB’s confirmation of a June cut this week, and others are actively positioning themselves in favor of further decline in the euro as a result. With a June cut already 100% priced in, I don’t really see the appeal of short EUR positions unless the bank makes the case for much deeper cuts than is already priced in.
Central bank rate expectations (April 8, 2024)
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