Citi's global macro analysis on the Federal Reserve over the weekend, warns that there is a slowdown in global growth looming.
In February, Citi write on the stock market drop:
- indicators of growth such as cyclicals vs. defensives, growth vs. value, yields and base metals all suggested that the initial correction was not a growth scare
But now:
- the second leg lower in equities seems to have morphed more into a growth scare
- led by a leg lower in base metals, an asset class that normally does well if inflation concerns are prevalent
- With nominal yields, real yields and breakevens falling, money market curves flattening to price less tightening and oil also off, it's hard to escape the conclusion that markets are suddenly less confident about the growth outlook
Citi is concerned on further Fed hikes:
- we calculate that the Fed has already moved into slightly restrictive territory vs. equilibrium rates
- ... further tightening from here will be a growth and risk asset negative
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Also, this via a weekend note from Barclays on EUR
EURUSD having broken its support trend line
- this presents an opportunity to initiate a technical short EURUSD trade
- Spot reference 1.2265
- target 1.1948 (200d MA
- stop loss 1.2444
This is also in line with our view that we see limited scope for EUR appreciation in 2018
- With the ECB's shift in policy now fully accepted by markets, its gradual path to normalization is unlikely to fuel gains for the single currency, which in our view is already around fair value.
... Wednesday's FOMC minutes may read hawkish
- in line with revisions to the dot plot
- especially against Chairman Powell's dismissal of those changes in the press conference
However there is a risk that Thursday's ECB minutes reveal a similarly hawkish tilt.
with the decision to drop the pledge to step up APP matched by a desire for faster deposit rate hikes
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Barclays add that this trade recommendation is valid from the Wellington open Monday morning to the New York close Friday
