Global Macro Thoughts：When doves fly

FICCResearchGlobalMacro AjayRajadhyaksha +12124127669 ajay.rajadhyaksha@barclays.comBCI,US GlobalMacroThoughts Whendovesfly MaxKitson +44(0)2035552386 max.kitson@barclays.comBarclays,UK KaanhariSingh +85229032651 kaanhari.singh@barclays.comBarclaysBank,HongKong FOCUS 25March2024 TheGMTwilltakeapausenextweek,andreturnthefollowingweek. Wherenotedinthesourcenotes,theviewsexpressedwithinthisreportaretakenfrompreviouslypublishedresearch.Forfurtherdetail,includingimportantdisclosuresandanalystcertifications,pleasefollowthelinksoneachpageandonpage8. ThisdocumentisintendedforinstitutionalinvestorsandisnotsubjecttoalloftheindependenceanddisclosurestandardsapplicabletodebtresearchreportspreparedforretailinvestorsunderU.S.FINRARule2242.Barclaystradesthesecuritiescoveredinthisreportforitsownaccountandonadiscretionarybasisonbehalfofcertainclients.Suchtradinginterestsmaybecontrarytotherecommendationsofferedinthisreport. PLEASESEEANALYSTCERTIFICATIONSANDIMPORTANTDISCLOSURESBEGINNINGONPAGE9. Restricted-External Completed:25-Mar-24,11:16GMTReleased:25-Mar-24,11:20GMTRestricted-External Theworldataglance •TheFedshrugsoffrecentinflationdata,whileothercentralbanksalsoprepareforcuts •JapanesemarketsexpectashallowBoJcycle •TheS&P500hitsanewrecordhigh,evenastheCNYfixingspookstheCNHmarket •Makingsenseofitall TheFedbelievesrecentinflationdataisjustabumpintheroad •WhiletheFedpushedupitslong-termfedfundsrateslightly,themeetingwasstilldovish1 oThe2024GDPforecastroseby70bp,andtheFednowforecastsabove-trendgrowthin25-26 oTheend24joblessratewentdownslightly,evenascorePCEinflationwentup0.2% oAnddespitethis,themediandotfor2024stayedunchanged •Inaddition,theFedhintedthatitplanstotaperQTfairlysoon1 oChairPowellacknowledgedthatthelasttwomonthsofinflationdatawasdisappointing oButhealsostatedthatitwasabumpintheroad,andnotthestartofatrend •TheBoEmeetinglastweekwasdovishaswell,with2previoushawksmovingtoa‘hold’1 oTheMPCsignaledthateasingwouldnowbeconsidered‘ateachmeeting’ oGovernorBaileyendorsedmarketpricing,andexpressedconfidenceoninflationcoolingfurther •TheSNBbecamethefirstDMbanktoease,surprisingmarketswitha25bpcut1 oAcrosstheWest,centralbankersaregearinguptoatleastmake‘adjustment’or‘insurance’cutssoon 1GlobalEconomicsWeekly:Optimismoverflow(22March2024) TheFed’smedian2024dotcontinuestopointtothreecutsthisyear… …despiterecentsignsoffirminginflationary momentum Source:FederalReserve,BarclaysResearch FederalReserveCommentary:MarchFOMC:Itchingtocut(20March2024) Source:BLS,BEA,HaverAnalytics,BarclaysResearch FederalReserveCommentary:MarchFOMC:Itchingtocut(20March2024) •TheBoJexitedbothNIRPandYCClastweek,andscrappedETF/J-REITbuying1 oThebankwillstillkeepitsregularoutrightJGBpurchasesinplacetomaintaineasyfinancialconditions oThestatementalsosaidtheBoJexpectsthat‘accommodativefinancialconditionswillbemaintained” •TheTOPIXRealestateindexandJapaneseREITequitieshavegoneupsharplyinrecentdays oJapaneseinflationbreakevens(10ysector,forexample)havealsorisenrecently oCollectively,marketsclearlythinkBoJhikeswillbesmallandwon’tchokeofftherecovery oWeagree;weexpectanotherhikeinJulytobethepeakofthecurrenthikingcycle1 •ChinasettheCNYfixabovethe7.1levelonFridaymorning,sparkingaCNHsell-off2 o7.1wasexpectedtobealevelthePboCwoulddefend;thefixdeviatedwidelyfromconsensus oUSDCNHrecordeditslargestmovesinceAugustlastyear;newsofmoreRRRcutsalsohelpedthemove •Thereareseveraleconomicreasonsforallowingaweakercurrency,includingpersistenteconomicweakness2 oOntheotherhand,China(includingthe‘NationalTeam’)hasaggressivelydefendedtheCNYformonths oWehavealsofeltthatChinamightwantFXstabilityheadingintoUSelections oMonday’sfixingcameinbelow7.1,strongerthanmarketexpectations,andstatebankswereUSDsellers oWedon’texpectsharpre-pricingweakerinthenearfuture,butthatislikelythemediumtermpathforCNY 1GlobalEconomicsWeekly:Optimismoverflow(22March2024) 2FX&EMWeeklyThoughts:ThekeytounlockthedollarandFXvol(24March2024) Centralbankpolicyeasingshouldsupport economicactivity MidcycleFedcuts(wherenorecessioncomesabout)tendtobepositivefor equities Source:Bloomberg,LSEGData&Analytics,BarclaysResearchEquityMarketReview–Partylikeit’s1995(22March2024) Source:LSEGData&Analytics,BarclaysResearch EquityMarketReview–Partylikeit’s1995(22March2024) •Bondyieldsralliedacrossthecurvelastweek,includingintheUS1 oAdovishFedexplainsthemoveinthefrontend;thelongeryieldrallywasmorepuzzling oTheFedseemstoexpectr*tofallrapidlybetween2024to2026 oButtheFed’sownmodels,usingtheFed’snewGDPforecasts,suggestahigherpolicyrate •AnendtoQTisnotlikelytohelplongeryields;mostoftheeffectisinshortrates1 oFedofficialshavealsotalkedaboutloweringthedurationoftheirTreasuryholdings oWeexpectTreasurytoborrow$1.8trnand$1.6trnincouponsin24-25,morethanin2023 oWehaverecommendedshortingUS10sfrom4.08%;despitelastweek’srally,weholdthatview •InvestorsthisweekwillwatchUShousingandPCEinflation,aswellasChinaPMIs oButadovishFedshouldstillbethemostlikelydriverofriskassets oBoththeNasdaqandS&P500reachednewhighstowardstheendoflastweek •Thepathofleastr