Caution needed ahead of central bank decisions and fears of inflation uptick

Markets should tread cautiously ahead of central banks interest rates decisions, says Ales Koutny head of international rates at Vanguard, and fears grow over reacceleration of inflation.

Koutny discusses how his buy-side desk is positioned ahead of a busy week and how he expects markets to react to the central banks Federal Reserve and Bank of England’s long-anticipated first interest rate decisions of 2024.

Across the globe, concerns are surfacing over the potential for a reacceleration of inflation amidst growing uncertainty over elections, future fiscal policies, and geopolitical instability. Koutny unpacks his views on the risk of an uptick in inflation to markets; he talks through how he is diversifying his portfolio in fixed income, and what he expects the liquidity environment to look like in 2024.

North America’s trading volumes and liquidity

  • Equities volumes elevated yet liquidity seemed to worsen week on week. US Investment grade volumes continue its high streak and bid-ask spreads have steadily tightened this January.
  • Data: Job Openings January 30, the Fed Interest Rate Decision January 31, and Non-Farm Payrolls February 2.
  • Primary equities: There are 5 IPOs expected to price at $1.74 billion. The largest expected is Amer Sports at $1.7 billion. 

Europe and the UK’s trading volumes and liquidity

  • EU equities volumes surged and liquidity was largely unchanged week on week. EU investment grade volumes remain elevated and liquidity is moderately improving this January.
  • Data: EU’s Growth Rate January 30, European Union’s  Inflation Rate, and Bank of England’s interest Rate Decision on February 1.
  • Primary equities: there are no IPOs expected to price on European exchanges this week.

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Published on January 29, 2024

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