Central Bank Divergence and Inflation Outlook (with Joumanna Bercetche)

Guest Frederik Carrier expects BOE and ECB to stay on hold despite BOJ's hawkish turn, as they focus on war-driven inflation vs growth. He sees opportunity in European inflation-linked bonds after two rate hikes are priced, but warns of near-term upside inflation surprise. For Fed, no change expected with pushback on easing. S&P strength driven by rising 2026-27 earnings estimates (tech correction, energy) and 15% growth forecast for 2027. Neutral on global equities, advises staying invested through midterm election year volatility.

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RBC 8.0
Investment Bank $1200.00B
Frederik Carrier 7.5

Central Bank Divergence and Inflation Outlook (with Joumanna Bercetche)

yields

Prices are already reflecting two rate hikes [in Europe].

4/24/2026 9:54:32 PM	medium term cautious up	21 days later	+6.62%	+3.31%
4/13/2026 9:11:49 AM	medium term up	20 days later	+4.46%	+4.46%
3/30/2026 7:24:50 PM	medium term cautious up	20 days later	-1.41%	-0.71%
12/24/2025 8:45:08 PM	medium term up	20 days later	+0.58%	+0.58%
10/29/2025 8:40:43 PM	medium term cautious down	20 days later	+0.98%	-0.49%
10/14/2025 1:23:21 AM	medium term cautious up	20 days later	+1.06%	+0.53%
10/2/2025 4:24:17 PM	short term cautious down	5 days later	+0.24%	-0.12%
9/30/2025 2:00:39 AM	short term cautious up	5 days later	+1.36%	+0.68%
9/16/2025 5:59:07 PM	short term cautious down	5 days later	+1.64%	-0.82%
9/11/2025 2:15:18 AM	short term cautious down	5 days later	+0.37%	-0.18%

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Whether the hawkishness from BOJ will be mirrored by ECB and BOE later this week in response to inflationary pressures from higher oil prices.

Joumanna Bercetche
Frederik Carrier

For Japan, the bank felt it was slightly behind the curve on inflation. This is not replicated in England or ECB. We expect both banks to remain on hold. For BOE, focus on the split vote and whether any member votes for a rate hike. It's a forecast meeting - we expect growth forecasts lowered marginally and inflation forecasts increased marginally.

For ECB, we expect Madam Lagarde to talk about the war intensity and longevity and how that will impact inflation. We expect the bank to be in a wait and see period.
The longer this war goes on, the more upward pressure on energy prices and downward pressure on growth. Which wins out for ECB decision making?

Joumanna Bercetche
Frederik Carrier

Both are important, but the impact of inflation is what they will be laser focused on to ensure there is no secondary round effect of inflation on the region.
You say European inflation-linked bonds are a good buy. Are they not reflecting the inflationary shock to come?

Joumanna Bercetche
Frederik Carrier

Prices are already reflecting two rate hikes, and that is where the opportunity lies. We think it's a little early to get in because the inflation surprise over the next couple of months is likely to be on the upside. Inflation-linked bonds are more attractive in Europe at the moment.
Investors are quick to price in rate hiking cycles for BOE and ECB but less so for the Fed. How are you thinking about it?

Joumanna Bercetche
Frederik Carrier

We also expect no change for the Fed. There will be pushback on any easing pressure because of fear of slightly higher inflation. Only in the case of lower inflation would we see interest rate cuts. For now, the Fed is on hold.
Are you surprised the S&P is on track for its best month since 2020 with everything going on?

Joumanna Bercetche
Frederik Carrier

It's been a very volatile year, but earnings estimates for S&P 500 have increased for both 2026 and 2027 forecasts - a lot to do with higher energy earnings and technology earnings. Investors are happy to look through a shock as long as there is confidence that next year's earnings growth will resume. With a forecast of 15% earnings growth in 2027, that's what's attracting investors, also given the correction in tech stocks earlier in the year which made valuations more attractive.
What is your allocation in global equities? Are you overweight the US?

Joumanna Bercetche
Frederik Carrier

We are neutral both in terms of global equities and regions. Having a diversified portfolio is the best way to go. Volatility is what we're seeing this year. It's a midterm election year where you tend to see peak-to-trough corrections averaging 20%. Stay invested up to your target strategic level and try to ride this election year where usually there's a big drawdown but also a bounce back and return to all-time highs.

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