Daily Market News by Xtreamforex.com

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  1. #641
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    Default Reserve Bank of Australia raises rates again

    Daily Market News by Xtreamforex.com
    The Reserve Bank Board should slow the pace of rate increases once it reaches its assessment of neutral. That is particularly because of the treacherous lags that will have built up as the inevitable result of such a sharp rate increase in rates, from 0.1% back in May.

    The Governor has certainly indicated that intention, both in the speech to the Australian Business Economists on September 8 and in the Parliamentary hearing last Friday.

    The scaling back to a slower pace of tightening could begin from the October meeting, with the cash rate having reached the neutral zone at 2.35%.

    There has always been some uncertainty as to whether a starting point of 2.35% would be too far below the Governor’s assessment of neutral. He has argued in the past that the real neutral is at least zero, implying a 2.5% nominal rate given longer term inflation expectations. That is above the 2.35% starting point for the October meeting.

    That 1% growth rate now has some downside risks but for now given the current momentum in the economy, it’s decided not to mark 2023 growth down any further. It’s also noted that since the forecast is 1% growth rate in 2023 we have revised down our 2022 growth rate from4.4% to 3.4% meaning that the level of GDP by end 2023 will be considerably lower than we had expected when we first made the 1% growth forecast.

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    Default SNB could surprise (again) with a larger than expected hike

    The central bank entered ZIRP between 2011-2015 before switching to NIRP with a rate of -0.75%, where it remained until June this year. And with seemingly few paying attention, they not only hiked rates but came out swinging with a 50 bp hike and sent shockwaves across currency markets. This quickly saw the yen strengthen as traders assumed the BOJ would be next to follow, but we’re still waiting and will likely be for some time. But the main point is that the SNB is likely to hike again tomorrow, and it would be wise to at least be prepared for a larger hike than some expect.

    A recent poll saw economists up their 50bp hike for the SNB to 75bp. But in light of Sweden’s Riksbank hiking by 100bp, wholesale prices in Germany exploding higher and the potential for the Fed to hike by 100bp, the potential for the SNB to join to 100bp club. Besides, they hiked by 50bp when the consensus was for no change at all and have a track record with an element of surprise. Furthermore, the Swiss government upgraded 2022 CPI from 2.5% to 3%, and for 2023 from 1.4% to 2.3%- so perhaps they know something.

    There are some examples of a strong bullish trend on a currency chart, than CHF/JPY right now. Momentum has been increasing during each impulse move higher, the moving averages are in bullish sequence and fanning out, and prices are respecting the closest average as support.

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    Default How Much FOMC Interest Rate Hike By Fed?

    The Federal Reserve Open Market Committee lifted the federal funds rate to the 3.0% to 3.25% range and reaffirmed a continuation of its balance sheet runoff. The Fed updated its language stating the “recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to pandemic, higher food and energy prices, and broader price pressures”.

    The Summary of Economic Projections was updated from June:-

    The median projection for real GDP growth was downgraded in 2022. The forecast for 2023,2024,2025 and the longer run came in at 1.2%, 1.7%, 1.8% and 1.8% respectively.

    The median unemployment rate forecast was 3.8% for 2022. 4.4% for 2023, 4.4% in 2024 and 4.3% in 2025. The longer-run estimate of the unemployment rate stayed the same at 4.0%.

    On inflation, the median estimate for core PCE was assumed to be 4.5% in 2022, 3.1% in 2023, 2.3% in 2024 and 2.1% in 2025.
    The median projection for the fed funds rate was lifted to 4.4% in 2022, 4.6% in 2023, 3.9% in 2024, and 2.9% in 2025. The long-run neutral rate was assumed to be 2.5%.

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    Default BOE: Another 50bp hike and we expect more to come

    in ro ham eslah kon:
    The BOE hiked policy rates by 50bp, bringing the bank rate to 2.25. The extent to which fiscal policy is set to boost demand and hence impact policy setting is still highly uncertain. Call for a 50bp hike in November and December and 25bp in February with risks of skewed towards additional hikes in 2023.

    The Bank Of England increased the Bank Rate by 50bp to 2.25% with 5 member voting for 50bp increase, 3 members voting for 75bp and one member voting for 25bp. As expected, BoE announced that outright government bond selling will start with a total reduction in bond holdings of 80 billion pounds over 12 months. The BoE repeated its meeting-by-meeting approach stating that “Policy is not on a pre-set path” giving close to no forward guidance to markets.

    One of the key takeaways from the Monetary Policy Summary is that the BoE no longer seem to pencil in a recession by Q4 2022. Note no inflation or growth forecast were published at this interim meeting, but not mentioning a recession gives a hint that the recession won’t hit as soon as BoE predicted in August. This feeds well into our narrative of the Fiscal stimulus providing near-term support to the economy. With newly elected PM Lizz Truss having announced the energy relief plan, which will cap energy prices for households, BoE now sees the peak in CPI inflation to be just below 11% compared to the 13% projected in August.

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