ECB: a hawkish rate cut?

The EUR and US fixed income markets tightened again this week due to the growing uncertainty over the ECB and the Fed’s rate cuts, which is dampening both the equity markets and risk appetite. The market now expects the Fed to cut rates only towards the end of the year. The yield on the 10-year UST is back above 4.5% and that on the 10-year Bund is settling at around 2.65%-2.70%. In the eurozone, the national surveys are slightly less favourable than the PMIs, although their trend remains positive, and the inflation estimate for May came in slightly above expectations. The market is therefore still awaiting next week’s ECB meeting, which looks set to trigger its rate-cutting cycle but with a still “data-dependent” stance, which should limit the potential for a fall in EUR rates .