LIVE MARKETS-Some shorter-end Treasury yields reflect growth fears - BarCap
Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com
SOME SHORTER-END TREASURY YIELDS REFLECT GROWTH FEARS – BARCAP
Some shorter-term parts of the Treasury market are pricing in growth concerns due to the U.S.-Israeli war on Iran, and the Federal Reserve is more likely to cut interest rates than peers that focus only on inflation, according to Barclays Capital.
Barclays analysts Anshul Pradhan and Demi Hu say the divergence in central banks reflects two key differences: the relative scale of the inflation shock on either side of the Atlantic, and the Fed's dual mandate of price stability and maximum employment, versus the sole inflation targets of the European Central Bank and Bank of England.
A widening Middle East conflict has complicated the economic outlook, with Brent crude rising sharply since the U.S. and Israel launched strikes on Iran and tanker traffic through the Strait of Hormuz effectively stalling.
The growth shock is also larger in Europe, Barclays argued, with equities selling off roughly twice as much in the United Kingdom and Europe as in the United States. Longer-term inflation expectations have repriced higher across the Atlantic, whereas they have fallen in the U.S., further widening the policy gap.
Fed Chair Jerome Powell on Wednesday said the U.S. central bank would look through the energy shock as "the net of the oil shock will still be some downward pressure on spending and employment." The BoE and ECB have signaled the opposite, standing ready to act to keep inflation on target.
Barclays said the March FOMC outcome was "less hawkish than perceived," noting the Fed lowered its real policy rate forecast despite upgrading both growth and inflation projections. Forward U.S. yields have begun to decouple from front-end repricing, suggesting growth concerns are coming to the fore.
(Karen Brettell)
EARLIER ON LIVE MARKETS:
WALL STREET TRACKS TOWARD FOURTH STRAIGHT WEEKLY LOSS AS IRAN WAR ESCALATES CLICK HERE
FROM COMPLACENCY TO FEAR: EQUITY PUT/CALL RATIO SWING HAS TRADERS ON ALERT CLICK HERE
IF YOU THINK THE ECB WON'T HIKE SOON, CAN YOU TRADE IT? CLICK HERE
NO SYSTEMIC RISK FROM PRIVATE CREDIT, UNICREDIT SAYS CLICK HERE
U.S. ECONOMY CAN'T SHRUG OF HIGH OIL PRICES AS IT DID 15 YEARS AGO CLICK HERE
CAUTIOUS TRADING CLICK HERE
BEFORE THE BELL: EUROPEAN FUTURES HIGHER, BUT STOCKS SET FOR A WEEKLY DECLINE CLICK HERE
MORNING BID: HAWKISH RATE REPRICING HALTS THE DOLLAR'S RALLY CLICK HERE
