BLAME IT ON THE BUND
We find ourselves in the uncomfortable position of defending lower interest rates in the U.S. even though we think that rates will and should begin to rise once the path towards a Fed lift-off becomes more clearly defined. From this perspective, we don’t see the market as fundamentally different versus where we were a few weeks ago from either the amount of central bank liquidity that we expect this year or the outlook for the Fed’s first rate hike. In fact, recent U.S. data continues to be mixed, with the hardly growing U.S. economy in the first quarter the standout in a series of disappointing data. We suppose there have seen nascent signs that the economy is rebounding in the current quarter. Although, outside of the past few weekly claims reports, there is nothing that alters our view that the Fed will most likely use the summer’s data to support an early fall lift-off. As Stanley Fisher implied when pointing out that the March jobs report was one weak release following 5-6 spectacular ones, one data point does not make a trend. There is chatter that a blow-out employment report this Friday will put a June lift-off back on the table, something we put low odds on after the 1Q:15 slowdown. The future market tends to agree, with the probability of a rate-hike at the next meeting nearly nil. We will also point out that the FOMC will have the May employment report to analyze before it meets again, so it is likely too early to draw conclusions after Friday’s release.