Flavour of the week
The summit taking place in Davos brings with it a huge opportunity for leaders of companies and industry to speak with the press. Whilst the World Economic Forum is billed as a venue where titans of industry come together to get business done, it often seems more like a hunting ground for journalists. The event has faced a lot of accusations of being antiquated and unnecessary in recent years. Despite that there is a defining feature of Davos 2024 that might prove significant and even useful to markets.
A number of commercial leaders and central bankers that have participated in the conference have spoken about the market’s current pricing of fixed income curves. These curves dictate how and when rate cuts are expected to take place. Those commenting on such pricing have been unanimous in suggesting that monetary easing is too heavily priced in. These admonitions coming from Davos haven’t yet been fully reflected in the market. We have seen some net long USD positions open up after weeks of short interest in the currency dominating flows. Despite that, expectations haven’t really budged. If anything, markets have nudged their rate expectations out past Q1, but still price future cuts with the same vigour as they previously had for the remainder of 2024.
There is a good chance markets will yield to the rhetoric that has emerged this week and moderate their expectations for rate cuts. This could be one key factor in delivering a stimulus to short term USD. With further attacks on vessels in the Red Sea, investors will also be wary of developing geo-political risks and the propensity for further US-led action in the region. With the Dollar’s role as a safe haven there are few scenarios within which the Dollar may lose any significant value over the coming weeks.
Discussion and Analysis by Charles Porter
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