Just wondering how to dissect the PPI as well as CPI data because the Fed pivot is quickly disappearing it seems and that I guess is going to be higher for longer?
Steve Englander: We think so. We changed our Fed forecast from cutting four times this year beginning in June to cutting twice, probably with the first cut in July. The issue is that inflation is staying up. We initially thought it was an aberration. It still might be an aberration, but we are less sure. The last three months of inflation are higher than the corresponding three months the year before and it is the first pickup in a while.

I would say the PPI gave some relief today, not enormous, but it suggests that the two decimal places there is a good chance core PCE will be 0.30 or less, slightly less, not a lot less. So, that is a bit of a relief. I think it means that some of the risk that is beginning to percolate into the market that it is not only that the Fed may not cut as much as we expected, but they might not cut at all. Some people are saying that they are hiking. I think that risk has diminished a little bit. But I think the market is still nervous about inflation prospects here.

Is it too early to assume that we could see a change in terms of how interest rate trajectory would move for 2024 because inflation is always cyclical and there could be cyclicality in terms of what we have got for US inflation data for March?
Steve Englander: In the combination of the CPI and PPI, CPI is certainly disappointing. I mean, the annualised core is around 4%. Core PCE probably comes in relatively benign. But the Fed has made it clear that they are in no hurry to cut policy rates if there is any ambiguity on the trajectory of inflation and enough of the FOMC participants are seeing ambiguity right now.

We do not think they are going to be cut in May. We used to think they would be cut in June. I would say it is still possible, but it has gone below 50% in our calculation. So, we see July as the first possible easing.

Some corporates seem to be raising alarm bells, talking about a prolonged high interest rate scenario worldwide. The fact that with China’s economic situation as well as the fact that US inflation is rising, all of this could lead to economic turbulence. Would that be a worst case scenario? Is that something that we would be maybe looking at or too early to tell?
Steve Englander: I think there is a risk. The one outcome of the sequence of inflation numbers is that inflation is going up. It could be kind of going to stabilise and it is still going to go down. I think the range of outcomes has widened and that worries the market, especially the view that the possibility of that not being our baseline, but the possibility that maybe we are close to a trough in inflation I think is worrisome right now. The market can deal with the slow pace of cutting rates. If you were to tell the market right now cutting rates is out of the picture, we would see the risk trade a lot more poorly than it has so far.