Soft landing at risk from escalating war and bracing for the end of ECB’s bond purchase programme

Dan Farrell, senior portfolio manager at Northern Trust Asset Management, warns that hopes of a soft-landing are at risk from being disrupted by the escalating war in the Middle East and advises desks to prepare for some major liquidity events coming up this year.

Following on from a bumper week for data and central bank interest rate decisions, from the Federal Reserve and the Bank of England, Farrell discusses how markets are cautiously optimistic that rates have peaked but says that geopolitical tensions could still hinder the battle against inflation.

The senior portfolio manager also unpacks the asset manager’s current outlook for 2024; where he’s taking on risk and how he advises desks to approach the upcoming week. In this episode, he takes a look at some of the upcoming liquidity events set to impact markets including the end of the European Central Bank’s (ECB’s) Asset Purchase Programme (APP) in March, where it will kick off the process of shrinking securities balance sheet.

North America: Weekly Review and Outlook

  • Last week saw high volatility across equities after the Federal Reserve’s interest rate decision but overall January has been a good month for liquidity. Record-breaking volumes in United States Investment grade (IG) and bid-ask spreads have gradually tightened since the start of the year.
  • This week’s data: ISM Services on February 5 and Canada’s Unemployment Rate on February 9. Earnings e.g. Alibaba and Walt Disney.
  • This week in primary equities: 6 IPOs expected to price at $1.1 billion in aggregate. The biggest being American Healthcare at $756 million.

Europe and the UK: Weekly Review and Outlook

  • Last week equities volumes surged due to sell-off spikes and liquidity gradually worsened. Euro IG saw record-breaking volumes and bid-ask speedily tightened over the last 5 weeks.
  • This week’s data: EU Producer Prices on February 5 and EU Retail Sales on February 6. Earnings e.g. Nordea Bank, Vodafone.
  • This week in primary equities: One IPO from Air Astana Joint Stock Company to price on LSEG this week. Reported media, says hopes to raise $300 million.

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Published on February 5, 2024

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