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Some analysts warn that rising yields could push up borrowing costs, causing the economic slowdown investors are now betting against. The key question is how much further bear steepening the market needs to see for "investors to become nervous," he added. In 2018, for instance, the curve shifted to a bear-steepening dynamic as the economy appeared to hold up well despite the Fed's tightening. Risks remain, however, warned Jonathan Cohn, head of US Rates Desk Strategy at Nomura Securities International, including the pain for companies refinancing debt at higher rates and China's weakening growth. BEARISH BETSSome investors are worried that Powell’s speech at the Fed's annual economic symposium in Jackson Hole, Wyoming, could trigger a short squeeze.
Persons: Jerome Powell's, Michael Harris, Gennadiy Goldberg, Alfonso Peccatiello, Peccatiello, Jonathan Cohn, Powell, Harris, Eoin Walsh, Jim Cahn, Cahn, Michael Edwards, Weiss, there'd, Edwards, Davide Barbuscia, Michelle Price, Megan Davies, Mark Porter Organizations: Treasury, Futures, Quest Partners, Securities USA, Fed, Nomura Securities International, Investors, TwentyFour Asset Management, Thomson Locations: U.S, New York, Jackson Hole , Wyoming, Carolina
Markets have ramped up bets on further rate increases after the ECB has already tightened monetary policy by 3 percentage points since July. ECB President Christine Lagarde reckons a 50 basis points (bps) rate hike "is very, very likely". "The ECB is prioritising getting policy rates as high as needed and nothing else is as important," Pictet Wealth Management's head of macroeconomic research Frederik Ducrozet, said. Signs of economic resilience suggest ECB growth forecasts, also out on Thursday, could be revised upwards for 2023. Falling energy prices and a stronger euro, up around 6% in trade-weighted terms from August lows, suggest headline inflation forecasts could be revised lower.
ECB President Christine Lagarde, speaking in Davos recently, stressed the need for monetary policy to "stay the course." "There were questions recently about why markets don't understand what the ECB will do next," said ING's Brzeski. With updated ECB projections not out until March, Lagarde is likely to be pressed on how the ECB views core inflation, which strips out volatile food and energy prices. The ECB targets headline inflation at 2%, but officials are focused on a core measure. Reuters Graphics5/ Is the ECB more upbeat on the growth outlook?
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