Daily Global Market Overview By zForex

[zForex]

Market Volatility and Central Bank Decisions: A Weekly Overview

Asian-Pacific markets declined on Monday in anticipation of central bank decisions scheduled for the week. Meanwhile, European markets had a negative start to the week.
The troubled Chinese real estate developer Evergrande saw its shares plummet by as much as 22.6% on Monday following the detention of some staff from the group's wealth management unit by the police over the weekend.
There are reports suggesting that the Japanese investment holding company SoftBank is planning to make significant investments, potentially reaching "tens of billions," in the field of artificial intelligence.
Societe Generale SA's stock dropped by more than 7%, significantly impacting Europe's Stoxx 600 Index, as the lender's strategic plan failed to meet investor expectations.
Oil prices continued to rise for the third consecutive day, with Brent crude approaching $95 per barrel due to OPEC+ supply cuts tightening the market. Investors are closely monitoring Saudi Energy Minister Prince Abdulaziz bin Salman's address at an industry conference on Monday for insights into the global oil supply outlook.
The US Federal Reserve is set to announce its decision on Wednesday. While it is widely expected that the central bank will maintain interest rates, investors are keen to discern the Fed's stance on inflation.
In other developments this week, Australia's central bank will release the minutes of its September 5 policy meeting on Tuesday, and the Bank of Japan will conclude its monetary policy meeting on Friday. Additionally, the People's Bank of China is expected to announce its loan prime rate decisions on Friday.
Last week in Europe, the European Central Bank raised interest rates by 25 basis points, marking the 10th consecutive hike and bringing its main rate to a record high of 4%.

 

[zForex]

China's Steady Loan Rates, UK Inflation, and Fed's Upcoming Policy Update

Across the Asia-Pacific markets, there was a widespread decline in response to China's decision to keep its one-year and five-year loan prime rates unchanged. In contrast, European markets are gearing up for a mixed opening on Wednesday, as global investors eagerly await the upcoming monetary policy announcement from the U.S. Federal Reserve.
Specifically, China has maintained its one-year and five-year loan prime rates at 3.45% and 4.2%, respectively, for the month of September. The People's Bank of China had last reduced the one-year LPR rates in August, lowering them from 3.55% to 3.45%, while the five-year LPR saw its last cut in June, dropping from 4.3% to 4.2%.
Meanwhile, Japan experienced a significant improvement in its trade deficit for August, which plummeted by 66.7% to 930.5 billion yen ($6.3 billion), compared to the 2.79 trillion yen deficit recorded a year earlier.
On the other hand, the United Kingdom observed a 6.7% inflation rate in August, slightly below expectations and a marginal decrease from the previous month. This development may influence the Bank of England's decision to potentially halt its tightening cycle after tomorrow. The likelihood of a quarter-point increase on Thursday has also decreased, with the market assigning it a probability of less than 60%, down from the previous 90%, as indicated by swap pricing.
The Federal Reserve is widely anticipated to maintain its current interest rates on Wednesday. However, market attention will be focused on the central bank's updated economic outlook, including the "dot plot" charting the projected Fed funds rate movements. Chair Powell's subsequent press conference will provide investors with insights into the direction of policy changes leading up to the November meeting and into 2024.
Additionally, Canada has experienced a notable increase in consumer prices, primarily driven by surging gasoline costs. This development might provide supporting evidence for the Federal Reserve to adopt a more restrictive stance on interest rates. Market expectations have roughly doubled the likelihood of a rate hike in Canada, now standing at approximately 40%, following a rise in annual headline inflation from 3.3% in the previous month to 4% in August.

 

[zForex]

Global Markets React to US Federal Reserve's Rate Decision and Economic Updates

Asia-Pacific markets experienced a decline today as a reaction to the US Federal Reserve's decision to maintain its benchmark policy rate. The central bank also disclosed its intention to raise interest rates once more this year, in accordance with its projections.
These projections indicate that the central bank anticipates raising rates to a median level of 5.6% by the conclusion of 2023, an increase from the current range of 5.25% to 5.5%. Additionally, the Federal Open Market Committee, responsible for rate-setting, projected two rate cuts for 2024, a reduction from its previous June forecast, potentially setting the funds rate at around 5.1%.
On another note, New Zealand's gross domestic product (GDP) showed a stronger-than-expected growth of 0.9% quarter-on-quarter in the second quarter of the year, surpassing economists' expectations of 0.5%. This positive performance followed a revised 0.0% growth rate in the first quarter, preventing the country from slipping into a technical recession. The previous reported figure for Q1 was -0.1%.
In the European markets, there was a downward trend at the opening bell. This comes ahead of a series of interest rate decisions scheduled for Thursday from central banks in England, Turkey, Sweden, Switzerland, and Norway. Additionally, there are preliminary consumer confidence figures for the Eurozone in September set for release.
The Bank of England's announcement marks a busy day for European central bankers. Notably, the Swiss franc depreciated after the Swiss National Bank unexpectedly maintained its rates, while Sweden's Riksbank raised its key rate as anticipated and expressed the possibility of more rate hikes. A decision from Norway's central bank is also on the horizon.

 

[zForex]

Japan's Economic Landscape: BOJ Policy and Inflation Trends

The Asia-Pacific markets are experiencing mixed performance after the Bank of Japan decided to maintain its current monetary policy in its latest meeting on Friday.
The central bank has kept rates at -0.1% and has set a target for the 10-year Japanese government bond yield at approximately zero. BOJ Governor Kazuo Ueda continues to assert the necessity of an ultra-easy monetary policy until Japan achieves a sustained inflation rate of 2%. Japan's headline inflation has consistently exceeded this target since April 2022, with the latest reading at 3.2% in August. However, Japan's private sector activity has expanded at its slowest pace since February, as indicated by flash estimates from au Jibun Bank, with a September composite purchasing managers index of 51.8, down from August's 52.6. It's worth noting that Japan's headline inflation rate for August was 3.2%, slightly lower than the 3.3% seen in July, marking the 17th consecutive month that inflation has surpassed the Bank of Japan's 2% target. Meanwhile, the core inflation rate, excluding fresh food prices, remained steady at 3.1%, matching July's figure and slightly above the 3% expected by economists polled by Reuters.
In European markets, there is a likelihood of a retreat on Friday due to the emerging prospect of prolonged higher interest rates following a series of central bank decisions this week.
In Great Britain, data published on Friday by the Office for National Statistics reveals a 0.4% increase in the number of goods purchased between July and August, rebounding from a drop in July when inclement weather discouraged shoppers. This growth in August was slightly below the 0.5% expansion forecasted by economists.
On Thursday, both the Bank of England and the Swiss National Bank chose to conclude their recent interest rate hike cycles, though they emphasized the need for continued vigilance and the possibility of further rate increases and sustained higher rates. Additionally, both the Swedish and Norwegian central banks raised interest rates.

 

[zForex]

Bank of England Halts Aggressive Interest-Rate Hike Cycle Amid Recession Concerns

The Bank of England has paused its aggressive interest-rate hike cycle, due to growing concerns about an impending recession outweighing worry about inflation. After 14 consecutive rate hikes since December 2021 when rates were at 0.1%, the central bank decided to maintain the key rate at 5.25%. The Monetary Policy Committee was split, with five members voting to keep rates steady and four advocating for an increase to 5.5%. Governor Andrew Bailey, holding the deciding vote, opted to maintain the rate.
Although the Bank of England signaled a temporary pause, it emphasized readiness to respond if inflation, currently more than three times above the 2% target, doesn't decrease as expected. Market indicators and many economists are increasingly betting that UK interest rates may have already peaked. This shift in sentiment led to a depreciation of the pound against the dollar. Investors now anticipate minimal further tightening in the coming months.
The decision to halt rate hikes brings relief to households and businesses grappling with rising borrowing costs since the end of 2021. Concerns about the economic outlook played a role in the decision, with data showing a contraction in output, rising unemployment, and declining job vacancies.
The Bank of England has revised its GDP growth forecast downward, and inflation is expected to drop below 2% in the medium term. Higher rates have had a significant impact on homeowners, with a £15 billion repayment burden expected. Some MPC members have cautioned against overtightening, with several voting to maintain rates.
In addition to the rate decision, the Bank of England has accelerated its quantitative tightening efforts to reduce its balance sheet, providing room for potential future financial stability interventions. Over the next 12 months, it plans to reduce its gilt portfolio by £100 billion to £658 billion, adding to last year's unwinding of £80 billion.

Post automatically merged: Friday at 14:33

Federal Reserve Announces Extended Period of High Interest Rates Amidst Inflation Concerns
The Federal Reserve kept its benchmark interest rate steady, indicating that rates are likely to remain high for an extended period after one more increase later this year. The Federal Open Market Committee, responsible for the US central bank's policy decisions, released a statement after their meeting, stating that they will determine the need for additional policy tightening. Fed Chair Jerome Powell emphasized their willingness to raise rates further until they are confident that inflation is moving towards their 2% target sustainably. The federal funds rate remained in the range of 5.25% to 5.5%, with 12 of 19 officials favoring another rate hike in 2023 to control inflation.
Powell stated their commitment to a restrictive monetary policy to achieve the 2% inflation goal. Fed officials now project a reduction in the federal funds rate to 5.1% by the end of 2024, reflecting renewed economic strength. This rate is expected to fall further to 3.9% by the end of 2025 and 2.9% by the end of 2026. Following the Fed's decision.
The Fed's strategy has shifted to a slower pace of interest rate increases, allowing incoming data to determine the peak interest rate level as inflation moves towards the 2% target. Inflation, excluding food and energy, increased by 4.2% in the 12 months through July. Officials project inflation to fall below 3% next year and return to 2% by 2026. Economic growth is expected to slow to 1.5% in 2024, following an upward revision to 2.1% in 2023.
The projection of higher interest rates for a longer period is influenced by a more optimistic view of unemployment, with the jobless rate expected to reach 4.1% in 2024, compared to the June projection of 4.5%. Powell clarified that a "soft landing" for the US economy is not the Fed's primary expectation, but it remains their primary goal to contain inflation.

Post automatically merged: Friday at 14:35

Bank of England Halts Aggressive Interest-Rate Hike Cycle Amid Recession Concerns

The Bank of England has paused its aggressive interest-rate hike cycle, due to growing concerns about an impending recession outweighing worry about inflation. After 14 consecutive rate hikes since December 2021 when rates were at 0.1%, the central bank decided to maintain the key rate at 5.25%. The Monetary Policy Committee was split, with five members voting to keep rates steady and four advocating for an increase to 5.5%. Governor Andrew Bailey, holding the deciding vote, opted to maintain the rate.
Although the Bank of England signaled a temporary pause, it emphasized readiness to respond if inflation, currently more than three times above the 2% target, doesn't decrease as expected. Market indicators and many economists are increasingly betting that UK interest rates may have already peaked. This shift in sentiment led to a depreciation of the pound against the dollar. Investors now anticipate minimal further tightening in the coming months.
The decision to halt rate hikes brings relief to households and businesses grappling with rising borrowing costs since the end of 2021. Concerns about the economic outlook played a role in the decision, with data showing a contraction in output, rising unemployment, and declining job vacancies.
The Bank of England has revised its GDP growth forecast downward, and inflation is expected to drop below 2% in the medium term. Higher rates have had a significant impact on homeowners, with a £15 billion repayment burden expected. Some MPC members have cautioned against overtightening, with several voting to maintain rates.
In addition to the rate decision, the Bank of England has accelerated its quantitative tightening efforts to reduce its balance sheet, providing room for potential future financial stability interventions. Over the next 12 months, it plans to reduce its gilt portfolio by £100 billion to £658 billion, adding to last year's unwinding of £80 billion.