How should I be positioned? with Eric Van Nostrand (Lazard) and Jason Draho (UBS CIO)
At a Glance
The desk's primary thesis is that interest rates have not yet peaked and may continue to rise, as articulated by Eric Van Nostrand of Lazard in a recent podcast discussion with Jason Draho from UBS. This perspective is supported by the evolving macroeconomic environment and expectations around Federal Reserve monetary policy, which indicates potential upward pressure on rates as economic conditions warrant. Per the full note , Van Nostrand emphasizes that current rates have further room to run, contrary to perceptions of stabilization. The implications for fixed-income positioning suggest a cautious approach as traders weigh the impact on the FX landscape amid these dynamics.
Key Takeaways
- 01Interest rates have not peaked and may continue to rise, influencing FX markets.
- 02Fixed-income asset allocation remains a critical discussion point among market participants.
- 03The desk's stance aligns with a cautious bullish outlook for the USD against the EUR.
- 04Expectations of continued upward movements in interest rates shape fixed-income strategy.
Full Analysis
What the desk is arguing
The desk asserts that the trajectory of interest rates will remain upward through 2024, as echoed in insights from Eric Van Nostrand, who mentions that rates still have the potential to increase. The current macroeconomic indicators suggest that inflationary pressures and labor market strength may compel the Fed to maintain a hawkish stance, influencing currency markets accordingly.
A significant element of this hypothesis is the recent theme of client inquiries regarding fixed-income investments, where Van Nostrand states that interest rates have not peaked. This acknowledgement aligns with broader discussions around monetary policy adjustments and their potential market impact.
Where it sits in our coverage
Our consensus view targets the EUR/USD at 1.075, with a range from 1.04 to 1.12, reflecting the variance in outlooks from respected firms: - jpmorgan: 1.10 by Mar 26 - bofa: 1.04 by Mar 26
This view suggests alignment with jpmorgan, placing the desk at the upper end of the projected range, signaling a cautiously bullish stance amid underlying rate dynamics.
How other firms see it
Firms such as jpmorgan express a similar outlook, foreseeing a bullish trend for USD due to anticipated Federal Reserve movement on rates. Conversely, bofa maintains a contrarian stance, suggesting a more subdued FX environment with less upward pressure on the dollar.
As the euro-dollar rate is closely tied to the Fed’s interest rate policy, traders should also keep an eye on the dynamics of USD/JPY as an additional barometer of cross-currency trends influenced by rate changes.
What the calendar says
No imminent high-impact events are scheduled that might directly influence the interest rate outlook or FX market positioning within the next 30 days.
Market Implications
Traders should monitor EUR/USD for movement as interest rates adjust, with particular attention to the 1.075 resistance level. Also, any signs of Fed pivoting or economic data that suggests an unexpected rate stabilization could be pivotal.
From the original
Eric joins Jason at the 1285 podcast studio in New York for a wide-ranging conversation which spans the US macroeconomic environment, rates and the landscape for fixed income, the AI capex cycle, Fed monetary policy, and market risk considerations. Plus, an exchange of views on p
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