DAVY VIEW

European markets have stabilised this morning despite heavy losses in Asia as the fallout from the US regional banking crisis continued. US two-year yields traded at 3.99%, down from 5% last week, with overnight index swaps implying the Federal Reserve will reduce rates to 3.9% by end-2023. The view that central banks’ tightening cycle is close to complete will be tested by tomorrow’s ECB meeting (concluding on Thursday). We expect the ECB may acknowledge risks to the outlook but will sound a hawkish message, raising the deposit rate to 3% and signalling further hikes in the coming months.