Goldman Sachs: EU And UK Front-End Sensitivity To US Data Likely Peaked

Goldman Sachs write “since the start of the year, we have highlighted how correlated G3 front-end pricing has been, including in the face of significant differences in the relative macro datasets.”

• “We estimate that responses to US data explain over half of the recent moves in 1y1y EUR and GBP OIS rates.”
• “This view is also corroborated by the signals from our macro PCA framework, which struggle to match broader macro asset patterns with the magnitude of the repricing in European rates so far this year.”
• “Finally, we note that even if there had been a significant reassessment of European activity, it has failed to translate into higher traded inflation (or surveyed expectations) in Europe.”
• “The above indicates to us there is increasing scope for macro divergence to translate into a (real) rate divergence in pricing as well.”
• “Long positioning is likely to be less of an issue going forward.”
• “We continue to recommend outright receive (Dec-24) in the UK and see value in relative longs in Europe vs the US.”