📝Fed Market Pricing Spilled Over to ECB: Nordea

Markets are pricing inflation victory, mostly in the US but to some extent also in the Euro area, where the implied inflation forward curve has come down quite a lot, reflecting less concern about upside risks to inflation.

The US rate repricing has also spilled over to the Eurozone. Markets expect 100bp of rate cuts for 2024, that is 15bp more cuts priced in for 2024 compared to a week ago – see the chart below. Markets have also frontrunner the expected rate cuts with 90% risk of a rate cut by April and almost 40% risk by March.

A significant weakening of key figures would be required for the ECB to cut rates that early. Inflation swaps imply 2% inflation reached in Oct ‘24. Jan/Apr close to -20bp also looks interesting, though there is almost two months from the Apr to the Jun meeting.

-Nordea