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Interest Rates: Over the Mountain
Aurelie Barthere
Key Takeaways
8 min read
  • The US - Europe growth gap will likely pressure EUR/USD further
  • ECB and Fed policy: We are now at the “top of the mountain” and the question evolved from “how much higher is the top in rates?” to “when should we safely start our descent?” It could be a long observation and deliberation time, because of the asymmetric risk of letting inflation “escape” again
  • BoJ: Policy Normalization has started, markets are slow to price that
  • Crypto: Correlation with equities is falling. Negative newsflow has had a moderate price impact so far. Monitoring BTC momentum which is close to zero (buy/sell threshold)

US - Europe growth gap

In our prior publication, we highlighted the gap between European and US data, with the former surprising to the downside compared to the latter. This difference in growth has increased in favor of the US. Most eye-catching last week has been the weakness in German manufacturing and services data. The German Purchasing Manager Index (PMI) is now 11.2 points in contraction territory. According to the PMI press release, “The sharp decrease in demand for goods and services reflected a range of factors, including customer hesitancy, destocking, high inflation and rising interest rates” and “there is an increased probability that the economy will be in...