At Any Rate
Global Rates: A busy week for European rate markets
Nov 8, 2024
Dive into the turbulent waters of European rate markets influenced by recent U.S. election results and significant central bank meetings. Explore the sharp shifts in the German yield curve and the implications of political changes in Germany. Discover how these factors are reshaping European credit spreads and funding rates across the region. Examine the effects of the Bank of England's rate cuts and the outlook for future policy shifts amid a complex economic landscape. It's a captivating discussion filled with insights from market experts!
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Quick takeaways
- The outcome of the US elections poses risks to euro-area growth, affecting the European Central Bank's potential rate cuts below neutral levels.
- The collapse of Germany's coalition government introduces volatility in bond markets, yet significant changes in fiscal policy are not anticipated.
Deep dives
Impact of US Elections on Euro Area Rates
The outcome of the US elections, particularly a potentially reelected Trump, raises concerns over renewed trade conflicts that could negatively affect the euro area's economic growth. Following the elections, there was a noticeable steepening in the German yield curve, driven by a sharp rally at the front end. This reaction aligns with expectations that the European Central Bank (ECB) may need to cut rates significantly, potentially below the 2% neutral level due to increased downside growth risks. Analysts revised their forecasts, positing that the market is not accurately pricing the risks associated with unexpected disinflation or recession, suggesting that rates in the euro area could decline in the near future.
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