Insight  |  March 11, 2024

Muzinich Weekly Market Comment: All Eyes on Fed, ECB - Again

In our weekly take on the key developments in financial markets and economies, we look for any signs of wavering by major central banks and consider what to make of the latest stimulus measures in China.

With the latest inflation data signaling a weakening in momentum of the disinflation trend, stickiness in consumer prices, and a rally in asset prices - all effectively loosening financial conditions - investors keenly await any signs that the European Central Bank (ECB) or Federal Reserve (Fed) will waver on their commitment to begin the process of easing monetary policy over the summer.

At its scheduled meeting on March 7, the ECB left policy rates unchanged as expected, but surprised investors by lowering its inflation projections. The updated quarterly forecasts now expect consumer prices to rise by 2.3% in 2024, a drop from December’s 2.7% projection, and for price growth to match the ECB’s 2% target in 2025. Growth prospects for 2024 were also lowered by 0.2% to 0.6%.

ECB President Christine Lagarde strongly hinted policy normalisation will begin in June,1 while Bundesbank President Joachim Nagel, a monetary policy hawk, said: “The probability is increasing that we could see an interest-rate cut before the summer break.”

In the US, the testimonies of Fed Chair Jerome Powell to the House Financial Services Committee and Senate Banking Committee gave investors ample opportunity to gauge his confidence to start loosening policy over the summer. Powell expressed confidence inflation is now sustainably moving towards 2%. On lowering interest rates, he said: “It’s not that far away.”2 The overnight interest rate swap market is pricing in a 98% probability of a 25-basis points rate cut in June.

China looks to restore confidence

In Asia, it was China's turn to show its commitment to supporting growth and restoring confidence. On March 6, Premier Li Qiang delivered his first government working report to the National People’s Congress, setting China’s growth target at “around 5%” with a fiscal deficit target of 3% of GDP. Qiang also announced details of a special central government bond worth CNY1 trillion (US$140 billion), equivalent to 0.7% of GDP.

After the People’s Bank of China in February cut the bank reserve requirement ratio (RRR) by 50 basis points (bps), releasing the equivalent of CNY1 trillion into the banking system, the central bank’s governor Pan Gongsheng said there is scope for further RRR cuts and will push for financing costs to trend lower.3

Given supportive moves by central banks, it was a good week for asset prices. Government bond yields fell, while corporate credit continued to generate a solid total return - investment grade benefitting from falling government yields. The price of gold hit an all-time high of US$2,160 per troy ounce on March 7, two days after bitcoin bested its own record. The cryptocurrency topped US$69,000 on March 5, bringing its year-to-date return to more than 50%.

Oil prices were again supported by OPEC+ after its members agreed to extend voluntary crude supply cuts of 2.2 million barrels per day until the end of the second quarter. And equities continued to move higher, with the S&P 500 experiencing only one weekly decline so far in 2024, and that was in the first week of the year.  

The rematch

As the uncertainty from central banks dissipates, another event looms large. In the US, President Joe Biden and former president Donald Trump stand as the remaining major candidates in both primary races, setting up a direct re-match for the election later this year.

This will be the seventh presidential rematch, and first since 1956’s contest between Dwight Eisenhower and Adlai Stevenson II.

In the first four rematches, the outcome was different the second time around; in the two most recent contests, the outcome was the same. Current polls suggest the upcoming election is too close to call, as our Chart of the Week highlights.

Chart of the Week: Polls suggest tight US presidential race

Source:, Deutsche Bank, as of 11th March 2024.  For illustrative purposes only. References to specific companies is for illustrative purposes only and does not reflect the holdings of any specific past or current portfolio or account.

1.Bloomberg News, “ECB Officials Bank June Cut With Some Keeping Door Open,” March 8, 2024
2.Bloomberg News, “Powell Says Fed ‘Not Far’ From Confidence Needed to Cut Rates,” March 7, 2024
3.Bloomberg News, “PBOC: CN Banks’ RRR 7% on Average, with Room for Subsequent RRR Cuts,” March 6, 2024


This material is not intended to be relied upon as a forecast, research, or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed by Muzinich & Co. are as of 11 March 2024 and may change without notice. All data figures are from Bloomberg as of 11 March 2024, unless otherwise stated. 2024-03-11-13095

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