Central banks alone cannot fix sentiment – SocGen

By FXStreet Michala Marcussen, Global Head of Economics at Societe Generale, suggests that the unorthodox monetary policy accommodation has resulted in financial markets to take considerable comfort from the liquidity channels of these policies; that is until recently as the dark side of low and negative yields has come to dominate the debate.

Key Quotes

Fed: We now expect only one hike at the end of this year. The Fed may try to hike earlier if market volatility subsides, however as the taper and lift-off have taught us, repricing of market expectations is likely to be challenging and it will probably take longer than the Fed would like. Importantly, we do NOT expect the dots to converge to our new scenario in one go. The Fed’s bias is still for hikes and removing them from the FOMC’s scenario will probably be done incrementally. This is very important for market sentiment. We assume four hikes next year, with the rate peaking at 1.875% (i.e. the ‘lost’ hikes are not made up).

PBoC: The PBOC is caught in the impossible triangle and we have recently scaled back expectations for RRR cuts.

ECB: Our baseline call includes a 20bp cut in the deposit rate in March, likely with the …read more

Source:: FX Street