Macro Minutes

Sticky Core & Right Tails

Debt ceiling negotiations turned out to be a lot less dramatic than many had anticipated – still to come are congressional votes – but once the smoke clears we’re left facing down the back half of the year with many of the questions investors had in January not much closer to being answered – it looks like we have seen peak headline inflation but core is proving to be stickier than many had anticipated. That has led to a reassessment of the policy outlook for the back half of the year – we discuss updated views on the Fed, BoE, ECB, BoC and RBA. The other side of the story is a buoyant equity market, seemingly impervious to hikes getting priced out. That may be puzzling or frustrating for macro investors but we discuss how the under-owned right tail in equities may signal more pain to come.

• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Izaac Brook (Desk Strategy), US Rates Strategy Analyst
• Simon Deeley (Desk Strategy), Canada Rates Strategist
• Robert Thompson (Research), Macro Rates Strategist
• Elsa Lignos (Desk Strategy), Head of FX Strategy
• Amy Wu Silverman (Desk Strategy), Head of Equity Derivatives Strategy

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

To the Limit

Debt limit talks are ongoing in Washington, with financial markets already jittery on US banking concerns amid restrictive policy stances across many developed markets. Recent ECB speakers have generally noted they expect further hikes, while the BoE left the door open in its data dependent stance. BoC communication over the last month has emphasized that another hike is very possible and any talk of cuts is premature. How close "to the limit" will central banks take policy?

• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Cathal Kennedy (Desk Strategy), Senior UK Economist
• Simon Deeley (Desk Strategy), Canada Rates Strategist
• Adam Cole (Desk Strategy), Chief Currency Strategist
• Michael Tran (Research), Global Energy Strategist

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Too much, or not enough?

We have a number of major central banks meeting these next two weeks, including the RBA last night, the FOMC, ECB, later this week, and the BOE next week. While each of these institutions may be facing slightly different circumstances, it’s likely that all are nearing a decision point within the next meeting or two, where they have to decide whether to keep pushing against high inflation or trust that they have already delivered enough tightening to sustainably redirect inflation back to target levels. That debate may be framed by the tension between backward and forward looking frameworks. Or more specifically do you rely on backward looking data, which generally shows that inflation is still uncomfortably elevated and labor markets remain tight, or trust more forward looking, model driven forecasts that would suggest pent-up lagged effects and tightening in credit conditions due to banking stress, are already enough to pull inflation back to target?

• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Gerard Cassidy (Research), Head of U.S. Bank Equity Strategy & Large Cap Bank Analyst
• Jason Daw (Desk Strategy), Head of North America Rates Strategy
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Elsa Lignos (Desk Strategy), Head of FX Strategy
• Su-Lin Ong (Research), Chief Australia Economist

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Ebbs and Flows

Rate volatility continues to be elevated, with policy rate expectations swinging around as determining the terminal rate and what happens afterwards is proving complicated. The unwinding of banking sector concerns accelerated into a more meaningful sell-off and rate hikes continued from most major central banks.

• Simon Deeley (Desk Strategy), Canada Rates Strategist
• Izaac Brook (Desk Strategy), US Rates Strategy Analyst
  
• Cathal Kennedy (Desk Strategy) - Senior UK Economist
  
• Alvin T. Tan (Desk Strategy) - Asia FX Strategist
  
• Lori Calvasina (Research) - Head of US Equity Strategy

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Seeking Calm!

The last week felt much calmer than anything experienced since the SVB and CS induced turmoil over the prior weeks. Volatility is much reduced, credit spreads are tighter and primary markets are re-opening again. Can this last and what are the lingering implications for markets and the economy from the March volatility?

• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Sean Taor (Debt Capital Markets), Head of European DCM and Syndicate
• Jason Daw (Desk Strategy), Head of North America Rates Strategy
• Adam Cole (Desk Strategy), Chief Currency Strategist

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Humpty Dumpty

It might be an overly simplistic argument, but in hindsight it should not be surprising that aggressive Fed rate hikes broke something in financial markets. Policy actions to ring fence the problems have been fast and furious but can all the kings horses and all the king's men, put dislocated markets back together again?

• Jason Daw (Desk Strategy), Head of North America Rates Strategy
• Nicola Dransfield (Desk Strategy), European financials credit strategist
• Adam Jones (Trading), Head of US Credit Algo Trading
• Tom Porcelli (Research), Chief US Economist
• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Adam Cole (Desk Strategy), Chief Currency Strategist

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Stretch Run

As hockey and basketball enter the last weeks of the regular season, central banks themselves are approaching the end of their hiking cycles. There is significant divergence among global central banks, ranging from a conditional pause from the BoC in January (which we expect to be reiterated this week) to ongoing tightening messages from the ECB and the Fed.

• Cathal Kennedy (Desk Strategy), Senior UK Economist
• Su-Lin Ong (Research), Chief Australia Economist
• Simon Deeley (Desk Strategy), Canada Rates Strategist
  
• Elsa Lignos (Desk Strategy), Head of FX Strategy
  
• Adam Jones (Trading), Head of US Credit Algo Trading

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Fooled by lags?

Are markets being fooled by lags? Not unusual for this point in the cycle, some data is coming stronger and some weaker. Recently the market has taken its cue from strong labor market data which might be a mistake. It has only been 6-8 months since large-scale rate hikes started and with monetary policy lags being anywhere from 12-24 months, there is a possibility that the bond market is underestimating the timing and magnitude of the growth downturn. But the patterns are not uniform across countries and this episode examines some of the nuances.

• Jason Daw (Desk Strategy), Head of North America Rates Strategy
• Robert Hogue (Research), Assistant Chief Economist
• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Adam Cole (Desk Strategy), Chief Currency Strategist

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

What Now?

The US payroll report sent shock waves through the fixed income market. Market pricing shifted aggressively - terminal pricing is now the highest in the cycle and finally consistent with the FOMC dots. Contagion has also spread to other markets. What now? Can the Fed keep hiking, can the BoC stay on hold, how much further will the BoE, ECB, or RBA go? And what are the implications for equities and FX? This episode delves into these topics.

• Jason Daw (Desk Strategy), Head of North America Rates Strategy
• Blake Gwinn (Desk Strategy), Head of US Rates Strategist
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Elsa Lignos (Desk Strategy), Head of FX Strategy
• Lori Calvasina (Research), Head of U.S. Equity Strategy
• Su-Lin Ong (Research), Chief Australia Economist

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Emerging Divergence?

Recent months have seen widespread hikes across most G10 central banks, but the potential for divergence is high in the coming months as some central banks are approaching the end of their hiking cycle.

• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Adam Cole (Desk Strategy), Chief Currency Strategist
• Simon Deeley (Desk Strategy), Canada Rates Strategist
• Amy Wu Silverman (Desk Strategy), Head of Equity Derivatives Strategy
• Su-Lin Ong  (Research), Chief Australia Economist
• Robert Thompson (Research), Macro Rates Strategist

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Can't, Won't, Don't Stop

While upcoming policy increments and terminal values for various countries are highly debatable, Can't, Won't, Don't Stop seems like an appropriate characterization of current near term central bank policy. To reiterate our message from late last year - 2023 could turn out to be as challenging as 2022 but for different reasons. 2022 was how high policy rates would go. In 2023 market expectations should become fractured into the hike, hold, cut camps.

• Jason Daw (Desk Strategy), Head of North America Rates Strategy
• Blake Gwinn (Desk Strategy), Head of US Rates Strategist
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Elsa Lignos (Desk Strategy), Head of FX Strategy
• Michael Tran (Research), Global Energy Strategist

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Final Countdown

BoC/Fed/BoE/ECB are all on tap over the coming week. How high rates will go, whether there will be a quick u-turn to rate cuts in 2023 and by how much, is a central theme for markets that will influence not only yield levels and curve shapes, but also important for FX and broader risk assets.

• Jason Daw (Desk Strategy), Head of North America Rates Strategy
• Simon Deeley (Desk Strategy), Canada Rates Strategist
• Blake Gwinn (Desk Strategy), Head of US Rates Strategist
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Elsa Lignos (Desk Strategy), Head of FX Strategy

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

It's Complicated

• Jason Daw (Desk Strategy), Head of North America Rates Strategy
• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Adam Cole (Desk Strategy), Chief Currency Strategist
• Amy Wu Silverman (Desk Strategy), Head of Equity Derivatives Strategy

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Where's Terminal?

All year market pricing for terminal rates in most countries has been a moving target and one directional – higher. Last week the Fed signaled a slower pace of rate hikes but a terminal value that was higher than their previous forecast.

• Jason Daw (Desk Strategy), Head of North America Rates Strategy
• Simon Deeley (Desk Strategy), Canada Rates Strategist
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Daria Parkhomenko (Desk Strategy), Head of FX Strategy
• Lori Calvasina (Research), Head of U.S. Equity Strategy

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Let's Get Restrictive

Most central banks are at a maturing stage of the hiking cycle, putting terminal policy rates firmly in focus at upcoming meetings both sides of the Atlantic.

• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Elsa Lignos (Desk Strategy), Head of FX Strategy
• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Simon Deeley (Desk Strategy), Canada Rates Strategist
• Michael Tran (Research), Global Energy Strategist

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

A Gilt Edged Crisis

A made in UK fiscal crisis has led to sharp rises in gilt yields, with the BoE's buyer of last resort interventions disappointing those expecting more QE-type operations. The yield rises have permeated to Treasuries and other developed markets, with important cross-asset implications.

• Jason Daw (Desk Strategy), Head of North America Rates Strategy
• Blake Gwinn(Desk Strategy), Head of US Rates Strategy
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Daniel Rico (Desk Strategy), Latin America FX Strategist

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Fault Lines

Fiscal policy has cracked the UK bond market, opened fissures in the Pound, causing ruptures in other bond markets and by extension risk and cyclically sensitive assets. Whether the fault lines in bond markets and risk assets turn into a full blown earthquake remains to be seen, but what is clear is that the high volatility should remain in place for the rest of the year. Stay tuned for our Macro Minutes series to hear from RBC experts on these developments.

• Cathal Kennedy (Desk Strategy), UK Economist
• Adam Cole (Desk Strategy), Chief Currency Strategist
• Simon Deeley (Desk Strategy), Canada Rates Strategist
• Jason Daw (Desk Strategy), Head of North America Rates Strategy
• Lori Calvasina (Research), Head of U.S. Equity Strategy

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Full Throttle

Central banks are going full throttle to fight inflation by delivering outsized rate increases over multiple meetings. Their job...

• Jason Daw (Desk Strategy), Head of North America Rates Strategy
• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Gordon Scott (Research), Australia Economics & Fixed Income
• Adam Cole (Desk Strategy), Chief Currency Strategist
• Adam Jones (Trading), Head of US Credit Algo Trading

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

The Bears are Back in Town

Many G10 central banks have moved policy rates to a neutral policy setting and are set to send them into restrictive territory with...

• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Simon Deeley (Desk Strategy), Canada Rates Strategist
• Elsa Lignos (Desk Strategy), Head of FX Strategy
• Michael Tran (Research), Global Energy Strategist

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Yo-Yo Yields

The bond market overreacted to inflation fears in June and yields overshot on the topside. July was a complete reversal (and some) as...

• Jason Daw (Desk Strategy), Head of North America Rates Strategy
• Simon Deeley (Desk Strategy), Canada Rates Strategist
• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Adam Cole (Desk Strategy), Chief Currency Strategist
• Daria Parkhomenko (Desk Strategy), FX Strategist

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

The Need For Speed

Central banks are full throttle on rate increases in a throwback to the early 1980's inflation fighting era. The ultimate end game of...

• Tom Porcelli (Research), Chief US Economist
• Blake Gwinn (Desk Startegy), Head of US Rates Strategy
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Jason Daw (Desk strategy), Head of North America Rates Strategy
• Elsa Lignos (Desk Strategy), Head of FX Strategy
• Lori Calvasina (Research), Head of U.S. Equity Strategy

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Dog Days of Summer

The weather isn't the only thing heating up; North American central banks are expected to deliver large rate increases in July and...

• Jason Daw (Desk strategy), Head of North America Rates Strategy
• Blake Gwinn (Desk Startegy), Head of US Rates Strategy
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Adam Cole (Desk Strategy), Chief Currency Strategist
• Adam Jones (Trading), Head of US Credit Algo Trading

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Too Soon To Focus On Growth Risks?

We continue in an ebb and flow between market focus on inflation and growth risks, with the latter taking more prominence in recent...

• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Simon Deeley (Desk Strategy), Canada Rates Strategy
• Daniel Rico (Desk Strategy), Latin America FX Strategist
• Lori Calvasina (Research), Head of U.S Equity Strategy
• Tom Porcelli (Research), Chief US Economist
• Michael Tran (Research), Global Energy Strategist

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Aggressive Tightening And Its Impacts

After markets started to shift attention towards growth risks, hawkish central banks and still elevated inflation have re-focused...

• Simon Deeley (Desk Strategy), Canada Rates Strategy
• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Amy Wu Silverman (Desk Strategy), Head of Equity Derivatives Strategy
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Elsa Lignos (Desk Strategy), Head of FX Strategy
• Robert Thompson (Research), Macro Rates Strategist

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Abrupt Reversals – Can They Be Sustained?

Markets have sharply reserved course. Is this the start of a new trend, a consolidation phase, or just a pause before past trends...

• Jason Daw (Desk Strategy), Head of North American Rates Strategy
• Adam Cole (Desk Strategy), Chief Currency Strategist
• Lori Calvasina (Research), Head of U.S. Equity Strategy
• Adam Jones (Trading), Head of US Credit Algo Trading
• George Davis (Desk Strategy), Chief Technical Strategist, FICC

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Shifting Sands in Macro & Markets

Inflation dominated the narrative for the past few months but growth risks are gaining importance and there are subtle shifts...

• Jason Daw (Desk Strategy), Head of North American Rates Strategy
• Simon Deeley (Desk Strategy), Canada Rates Strategy
• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Adam Cole (Desk Strategy), Chief Currency Strategist
• Amy Wu Silverman (Desk Strategy), Head of Equity Derivatives Strategy
• Michael Tran (Research), Global Energy Strategist

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Central Banks Strike Back

There are clear parallels between now and the early 1980's (rates vol, inflation uncertainty, aggressive central bank tightening)...

• Jason Daw (Desk Strategy), Head of North American Rates Strategy
• Tom Porcelli (Research), Chief US Economist
• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Su-Lin Ong (Research), Chief AU Economist
• Daria Parkhomenko (Trading), FX Strategist
• Adam Cole (Trading), Head of US Credit Algo Trading

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Curve Chaos: Bond, Equity, FX Implications

Bond markets have gone wild - the sell-off has intensified and the new dimension of the move higher in rates has been dramatic curve...

• Jason Daw (Desk Strategy), Head of North American Rates Strategy
• Tom Porcelli (Research), Chief US Economist
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Adam Cole (Desk Strategy), Chief Currency Strategist
• Lori Calvasina (Research), Head of U.S. Equity Strategy
• Amy Wu Silverman (Desk Strategy), Head of Equity Derivatives Strategy

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Central Banks – The Road Ahead

Global central banks continue to shift more hawkish, but can lofty market pricing for tightening be realized? What are the risks and...

• Tom Porcelli (Research), Chief US Economist
• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Elsa Lignos (Desk Strategy), Head of FX Strategy
• Simon Deeley (Desk Strategy), Canada Rates Strategist
• Jason Daw (Desk Strategy), Head of North American Rates Strategy
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Su-Lin Ong (Research), Chief AU Economist
• Michael Tran (Research), Global Energy Strategist

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Up, Up and Away

A hawkish Fed added fuel to the bond market sell off, which is having repercussions across global asset markets. In this episode, RBC...

• Jason Daw (Desk Strategy), Head of North American Rates Strategy
• Tom Porcelli (Research), Chief US Economist
• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Peter Schaffrik (Desk Strategy), Head of UK/European Rates & Economics
• Simon Deeley (Desk Strategy), Canada Rates Strategist
• Adam Cole (Desk Strategy), Chief Currency Strategist
• Robert Thomson (Desk Strategy), Macro Rates Strategist
• Jason Mandel (Desk Strategy), Head of Leveraged Finance Desk Strategy

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts

Russia-Ukraine Risk Premium

The Russian invasion of Ukraine is having a pervasive impact on global economies and financial markets. In this episode, RBC experts...

• Jason Daw (Desk Strategy), Head of North American Rates Strategy
• Helima Croft (Research), Head of Commodity Strategy & MENA Research
• Peter Schaffrik (Research), Head of UK/European Rates & Economics
• Elsa Lignos (Desk Strategy), Head of FX Strategy
• Tom Porcelli (Research), Chief US Economist
• Blake Gwinn (Desk Strategy), Head of US Rates Strategy
• Simon Deeley (Desk Strategy), Canada Rates Strategist

* Research Analyst opinions are their published views, independent of those expressed by Desk Analysts