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UniCredit Macro & Markets Weekly - Rate hike expectations appear overdone

    Roberto Mialich
    Roberto Mialich

    FX Strategist

    Contributors
    UniCredit
    1 April 2022
    Published by
    • Macro: While German industrial production is likely to show a decline for February (on Thursday), the negative impact from the Russia-Ukraine conflict will only materialize in March. We expect the US ISM Non-Manufacturing Index to gain further momentum thanks to the almost full removal of COVID-19-related restrictions (on Tuesday).
    • FI: As we view rate-hike expectations in the US and the euro area as exaggerated, yields on sovereign bonds and swap rates are likely to come down, although it might become clear only in a few months that high-flying tightening expectations will be unmet.
    • FX: Any breakthrough in Russia-Ukraine talks may take some shine off the USD and keep EUR-USD above 1.10. Still, it will unlikely be enough to prevent more JPY weakness given the BoJ’s latest dovish stance.
    • Equities: The medium-term potential for European equities is intact, while European equities are attractive from an equity-risk-premium perspective, particularly compared to the US.
    • Credit: We see scope for the number of fallen angels to rise, while the scope for rising stars is expected to be limited this year; we have revised our forecast for fallen angels from EUR 3bn to EUR 10bn and that of rising stars from EUR 9bn to around EUR 5bn this year.