35 years after the pricking of asset bubble highs their equity markets have regained those levels and beyond. Japanese debt to GDP is 260%, more than 9 Trillion US Dollars or 1.25 Quadrillion Yen (?!) and the BOJ owns near to 50% of it retaining the option to buy more. This result possibly shows the downside of pursuing a negative interest rate policy for so long. Small wonder that the Bank for International Settlements continues to caution developed economies about their continual amassing of debt.

In contrast the Federal Reserve looks on course to begin cuts in June (although recently swaps markets were only pricing in a 50% probability) and commentators continue to speculate about the size and pace of these cuts with any forecasts so far being as inaccurate as they were on the way up. The Fed has made it clear they will move when they want to rather than when the market tries to tell them to and at present they are signalling three cuts for 2024, with US growth likely to be over 2% this year they have a powerful combination of steady growth, falling inflation and high employment to play with.

The SNB surprised with the first rate cut of a major central bank since the pandemic and the ECB could be next despite President Lagarde doing her best to quash any over optimistic forecasts. The ECB has to deal with anaemic German activity, whose industrial base has stagnated while its manufacturing output contracts, and a Eurozone periphery that is enjoying solid growth. Not an easy task for a Central Bank.

The UK’s recession appears to have been as shallow as hoped and activity has regained some momentum in Q1 2024. Retail sales have been volatile as ever but overall encouraging as is consumer confidence and if inflation continues to fall back and labour markets remain firm the Bank’s task should be straightforward despite a looming election. A damp squib of a budget did nothing for the electoral chance of the Conservatives. The BoE continues to try and moderate easing expectations and timelines but there are now no MPC members calling for a hike. They plan to sell £8 Bn of Gilts in Q2 24 from their balance sheet, evenly split across maturities. A recent strong 20yr Gilt auction underlined the continued appetite for our Sovereign risk.

Credit spreads maintained their grind tighter in the face of high demand for the asset class. The primary market continues to feed all currencies and more than 85% of all $ deals have rallied well from their issuance spreads, a similar story in EUR and Sterling. 
 

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