Central Banks' Normalization Series #5. First Steps Taken, Underweight Bond Extended

Lyxor / Bond

24-11-2017

The baton is passing from pure monetary stimulus to fiscal push and deregulation

On the one hand tax reform contours are currently being negotiated in Congress, so that the odds of an (at least minimal) accord have increased markedly. On the other hand, Fed chair nominee Jerome Powell and vice-chair for regulation Quarles have voiced their support to a scale down of the regulatory burden imposed on small & local banks.

Balance sheet reduction initiated, 100bps of rate hikes expected over next 13 months

The Fed balance sheet reduction started on-schedule in October. With a labor market that creates more than the threshold 100K-120K jobs per month, a December hike is in the making. And next year’s slightly more hawkish FOMC should deliver the 3 rate hikes that Dots promise.