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Goldman: Markets Overinterpreting Shifts In Policy And Growth

US TSYS

Goldman Sachs note that their “macro PCA decomposition of market behaviour suggests that much of the year-to-date decline in U.S. yields is coming from perceptions of weakening growth and easing of monetary policy (relative to expectations). We believe markets are overinterpreting shifts in both these dimensions.”

  • “First, growth news outside the U.S. has been positive. While U.S. growth data are admittedly weak,, much of this weakness is in “soft data,” with hard activity data holding up much better.”
  • “Second, although several Fed speakers have voiced their preference for another downshift in the pace of hikes, we do not see this as translating to a lower terminal rate; nevertheless, markets appear to be trading the change that way.”
  • “Both of these factors are likely to reverse in due course; the first once the drag from FCI tightening on growth fades more meaningfully, and the second as the Fed delivers the additional 75bp of hiking we currently expect it to. From a timing perspective, we expect the catalysts to such a reappraisal to become more apparent in the second quarter.”
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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