While the ECB has cautiously started its descent from the peak, Fed policy rates are still plateauing. However, more benign inflation data, potentially coupled with further signs of labor market cooling, keep the possibility of a first Fed cut in September alive. Still, with US growth slowing but not yet falling off a cliff, the risk of a first cut after the US elections should not be disregarded.

Meanwhile, the current policy stance of the BoJ and PBoC seems very much ‘born in the USA’, with FX weakness forcing these central banks into a tighter stance than they otherwise would take. Despite signs of cooling inflation, the BoJ is expected to announce some form of QT and a rate hike over the next three months. Moreover, we suspect that a further, necessary, rate easing by the PBoC will be delayed until Q4.

The Eurozone, where the ECB remains on track for another rate cut in September, seems more insulated from the impact of the Fed’s higher-for-longer policy stance. But, as in the US, long-term bonds of fiscally less challenged countries like Germany and the Netherlands continue to underperform swap rates. This trend may have further to run as the US elections draw nearer.