February started with the fallout of a US Federal reserve meeting which continued the push back on market expectations of cuts, with Chair Powell stressing that a move lower in March was not “base case.” The narrative did not change from any other Fed speaker over the course of the month, and we finished February with the curve pricing in a fraction over the 3 cuts forecast by the Feds dot plot for 2024. The rest of the month was dominated by robust corporate earnings data out of the US, showing an economy that continues to adapt, grow, and handle higher rates remarkably well. The crowning release being NVIDIA, which managed to exceed the elevated expectations, confirming why the AI miracle has further to run. So good was the earning season that “no landing” headlines are now beginning to appear. Japan joined the UK and Germany in technical recession, however this does not reflect the momentum in some parts of the economy such as wages and labour. No movement in target rates was seen by any G10 central bank, although the RBNZ talked tough on potential hikes going into its meeting but then exhibited little bite, even lowering its inflation forecast. The positioning in rates feels balanced and sensitive to new data or commentary, making for an environment with very fluid price action.
The US 10y closed the month 33.8bps higher and 5s-30s swap was 22.3bps flatter.
