Who cuts first?

The inflation picture in the US and Europe is similar, but the growth environment less so. Although some signs of reaccelerating growth have emerged in Europe, the starting point remains sub-trend. Against this backdrop, we look at the expectations for interest rate cuts in both regions.

What does this mean for fixed income investors?

We believe the Fed is in restrictive enough territory to cut later this year. We are confident that wage growth will continue to fall, placing added downward pressure on inflation. Barring any major exogenous shocks, our base case is for the Fed to cut in June, and we expect a gradual cutting cycle thereafter given the current growth backdrop. Considering Europe’s position vis-à-vis the US, the eurozone is more susceptible to economic headwinds. Therefore, while we also expect the ECB to begin to cut in June, with quarterly cuts thereafter, we think the ECB is more likely than the Fed to embark on sequential cuts given prevailing growth differentials. Positioning-wise, duration continues to be strategically attractive and we prefer to express our views via Europe (for example, in Italy, Spain and the UK).

About the Bond Bulletin

Each week J.P. Morgan Asset Management's Global Fixed Income, Currency and Commodities group reviews key issues for bond investors through the lens of its common Fundamental, Quantitative Valuation and Technical (FQT) research framework.

Our common research language based on Fundamental, Quantitative Valuation and Technical analysis provides a framework for comparing research across fixed income sectors and allows for the global integration of investment ideas.


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