Synopsis:

Bank of America outlines its expectations for a modest easing cycle by major central banks, highlighting the continuation of supportive conditions for carry trades. The firm maintains a short position on the Swiss Franc (CHF) based on the anticipated shallow rate cuts and robust market conditions.

Key Points:

• Central Bank Easing: BofA anticipates that central banks may initiate rate cuts despite the ongoing scenario of strong economic indicators, such as resilient equities, persistent inflation above targets, and growth exceeding expectations.
• Support for Carry Trades: The expected shallow rate cuts are seen as bolstering carry trades, particularly benefiting high beta G10 currencies like NZD, CAD, AUD, SEK, and NOK.
• Short CHF Strategy: BofA remains short on CHF via options, influenced by the broader market dynamics and the differential in market pricing of terminal rates compared to historical averages.
• Risk Considerations: There is an ongoing risk of a more significant economic slowdown, which BofA refers to as a "proper landing," that could alter the current market trajectory and central bank policies.

Conclusion:

Bank of America expects a limited easing cycle from major central banks, continuing to support carry trades and high beta currencies. The firm remains strategically short on CHF, anticipating that the current financial conditions will persist. However, it remains cautious about the potential for a significant economic correction that could shift central bank strategies and market dynamics.