TwentyFour Blog

In his headlining speech at the Jackson Hole Economic Symposium, Federal Reserve (Fed) chair Jerome Powell’s message to the market was clear.

It feels as though market news hasn’t taken a holiday so far this summer. From the US on Wednesday we got the minutes of the Federal Reserve’s (Fed) July 30-31 policy meeting, and revisions to a whole year of non-farm payrolls (NFP) data from the Bureau of Labour Statistics (BLS).

Recent US Consumer Price Index (CPI) inflation data brought good news for investors and central banks.

If you were on vacation last week, your holiday blues wouldn’t have been helped when you looked at your screens this morning, given how quickly sentiment has changed, mainly on the back of one data point.

The last few weeks have seen former President Donald Trump establish a lead over current President Joe Biden across polls in the run-up to November’s US election. Even though it is early days and a lot can change before November (including the Democrat candidate), it is worth considering what a second Trump term might mean for the world economy and for fixed income markets.

Last month saw the European Central Bank (ECB) get their cutting cycle underway with a 25bp cut in the deposit rate to 3.75%. However, any expectations for a rapid series of reductions after the first move were tempered by President Christine Lagarde, who at the subsequent press conference was clear that the ECB could move in phases in which they left interest rates unchanged.

There is little disagreement among investors and economists that the last few years have been highly unusual in many respects. An inflationary shock in developed markets, one of the fastest rate hiking cycles on record, the worst year in decades for government bonds (2022), and mild recessions with no movement in unemployment are just a few of the dynamics that have strayed from recent norms.

After weeks of volatility following President Emmanuel Macron’s decision to call snap parliamentary elections in France, markets were breathing a sigh of cautious relief on Monday after the far-right Rassemblement National (RN) underperformed the polls.

One of the drivers of the dovish pivot from the Federal Reserve (Fed) in December was the acknowledgement that the risks to the policy outlook had become more two-sided. In other words, while higher rates were still needed to tame inflation, the Fed saw a risk that staying restrictive for too long and risk damaging a labour market that has so far shown remarkable resilience.

For any fixed income investors that follow the England football team, the plan for H2 2024 may feel somewhat familiar – no substitutions in the second half.

Securitisation made its latest appearance in the mainstream financial press this week with the news that the European commercial mortgage-backed security (CMBS) market is set to experience its first losses on AAA bonds since the global financial crisis.

For the fixed income fanatics amongst us, June was always going to be one for the books with all three of the major central banks meeting, elections, and continued data.