In the past week The Reserve Bank of Australia left rates unchanged in line with consensus but with markets pricing a return to hiking later. FOMC Minutes for the June 13-14 meeting were released with no surprises. With US CPI and PPI out next week Chicago Fed President Goolsbee noted that services inflation is the main reason inflation overall has been more persistent. He added, “We can have 1-2 more rate hikes this year”. In the week ahead we get the Bank of Canada’s, RBNZ, Peru’s central bank and BoK policy decisions and the Fed’s Beige Book. We also have a slew of Fed Speakers and the BOE’s Bailey talking.
Central Bank Weekly Analysis and Outlook – Banker dynamics are complex. There are myriad facets to analyze and contemplate.
Central bank monetary policy decisions and market activity interest rate decisions can have a dominant effect on financial markets, fiscal policy and geopolitics. We keep an eye on key banker developments, what they mean and what is ahead.
In the Week Ahead
In the week ahead we get the Bank of Canada’s, RBNZ, Peru’s central bank and BoK policy decisions and the Fed’s Beige Book. We also get US CPI on Tuesday and PPI on Wednesday and the start of the US bank earnings season on Friday.
To say central bankers, have issues is an understatement. Already grappling with the quickest inflation in decades they now have these decisions to make, forcefully raise borrowing costs to defend currencies and risk hurting growth, spend reserves that took years to build to intervene in foreign exchange markets, or simply stand aside and let the market play out.
Central Bank Highlights This Past Week:
Most of the G10 central banks may complete their rate hike cycles around the middle of the year or earlier, the unwinding of central bank balance sheets may continue longer, depending on the damage done.
This week’s central bank main events included:
- RBA Holds Rates at Ten Year High 4.10%, Signals Hiking Cycle Near End
- Bank Negara Malaysia kept benchmark interest rates unchanged on Thursday, as expected, amid signs of moderating growth and easing inflation, with economists saying it will likely stay on hold for the rest of the year.
- National Bank of Poland (NBP) left its main interest rate on hold at 6.75% as expected, but with policymakers signaling potential rate cuts in autumn. The NBP now sees inflation at 11.1-12.7% in 2023, 3.7-6.8% in 2024 and 2.1-5.1% in 2025. Its previous forecasts were, respectively, 10.2-13.5%, 3.9–7.5% and 2.0–5.0%.
- The Bank of Japan announced that the frequency and size of its bond purchases will not change in Q3.
- European Central Bank policymaker de Guindos repeated that the governing council is not yet done with rate hikes while President Lagarde said that there is more work to do in order to lower inflation.
- Chicago Fed President Goolsbee says I feel like we’re on the golden path to ‘no recession and low inflation. Job market is outstanding. It’s getting back to a balanced, sustained level. I haven’t seen anything that says one or two more hikes this year is wrong. Services inflation is the main reason inflation overall has been more persistent
Eyes on the Bond Market
U.S. Treasuries in a volatile week saw the 5-yr note and shorter tenors reclaim some of their losses from Thursday after the stronger than expected ADP employment report was tempered by a much tamer BLS jobs report. However, the 10s and 30s added to this week’s losses. The 2-yr note recovered Thursday’s entire loss, continuing this week’s outperformance, which alleviated some pressure on the 2s10s spread, widening it by 17 bps to -89 bps. We get more volatility next week with the latest CPI report and Beige Book on the docket.
Treasury borrowings will now be playing catch up. Treasury Q1 issuance slowed to $124 billion to a record $26.956 TN. Outstanding Treasury debt surged $7.937 TN, or 41.7%, over the past 13 quarters. Since the end of 2007, Treasury debt has inflated $20.905 TN, or 345%. After ending 2007 at 41%, Treasury debt closed the quarter at 102% of GDP.
Yield Watch
Friday/Week/Month/Quarter
- 2-yr: UNCH at 4.88% (+13 bps for the week; +49 bps in June; +82 bps in Q2)
- 3-yr: -2 bps to 4.49% (+16 bps for the week; +45 bps in June; +66 bps in Q2)
- 5-yr: -1 bp to 4.13% (+13 bps for the week; +39 bps in June; +52 bps in Q2)
- 10-yr: -4 bps to 3.82% (+8 bps for the week; +18 bps in June; +33 bps in Q2)
- 30-yr: -6 bps to 3.86% (+4 bps for the week; UNCH in June; +17 bps in Q2)
Highlights – Federal Reserve
- Federal Reserve Credit declined $48.9bn last week to $8.269 TN.
- Fed Credit was down $598bn from the June 22nd, 2022, peak.
- Over the past 199 weeks, Fed Credit expanded $4.542 TN, or 122%.
- Fed Credit inflated $5.458 TN, or 194%, over the past 556 weeks.
- Fed holdings for foreign owners of Treasury, Agency Debt slipped $0.6bn last week to $3.442 TN.
- “Custody holdings” were up $55.1bn, or 1.6%, y-o-y.
Fed 2023 Bank Stress Tests.
The Federal Reserve released the hypothetical scenarios for its annual bank stress tests before hand. This year, 23 banks will be tested against a severe global recession with heightened stress in both commercial and residential real estate markets, as well as in corporate debt markets. Last year the Fed found all 34 large banks tested remained well above their risk-based minimum capital requirements, and the Fed announced no restrictions relating to dividends and buybacks.
Busy Central Bank Week Ahead:
- Bank of Canada with new forecasts in the July Monetary Policy Report and a full set of communications including a press conference held by Governor Macklem and Senior Deputy Governor Rogers. Expectations the BoC to hike by another 25bps, going to be another potentially close call. Markets have pushed toward 70% odds of a hike at this meeting. Sixteen out of twenty-four forecasts expect a hike including all six of the nation’s largest bank economics groups.
- Reserve Bank of New Zealand is widely expected to hold its target rate unchanged at 5.5% on Tuesday evening (ET). The consensus of economists is unanimous in favouring a hold and markets are assigning a very low probability of a hike.
- Bank of Korea widely expected to hold its 7-day repo rate unchanged at 3.5% for the fourth consecutive meeting on Thursday. Inflation has been trending lower in year-over-year terms, albeit that core CPI has been running at hotter than seasonally normal pace over the past three months in m/m term
- Peru’s Central Bank is widely expected to hold its policy reference rate unchanged at 7.75% for a sixth consecutive meeting on Thursday evening (ET).
This Week’s Interest Rate Announcements (Time E.T.)
Tuesday, July 11, 2023
- 22:00 RBNZ Interest Rate Decision
Wednesday, July 12, 2023
- 10:00 Bank of Canada interest rate announcement
- 21:00 Bank of Korea Interest Rate Decision
Thursday, July 13, 2023
- 19:00 Peru Interest Rate Decision
This Week’s Central Bank Speeches, Meetings (Time E.T.)
Monday, July 10, 2023
- 03:00 Swedish Central Bank minutes from the Executive Board’s monetary policy discussion will be published
- 10:00 Fed Vice Chair for Supervision Barr in a discussion at Bipartisan Policy Center about bank supervision, regulation, and new capital requirements
- 10.30 Federal Reserve Bank of San Francisco President Mary Daly participates in fireside chat hosted by the Brookings Institution Hutchins Center on Fiscal and Monetary Policy
- 11.00 Federal Reserve Bank of Cleveland President Loretta Mester speaks virtually on the economic and policy outlook before the University of California, San Diego 2023 Economics Roundtable Lecture Series: “An Update from the Federal Reserve with Loretta Mester.”
- 12:00 Federal Reserve Bank of Atlanta President Raphael Bostic participates in “National and Metro Atlanta Economies” armchair conversation before the Cobb Chamber of Commerce Marquee Monday event
- 15:00 GMT Bank of England Governor Andrew Bailey gives a speech at the City of London’s annual Mansion House dinner
Tuesday, July 11, 2023
- 09:00 Federal Reserve Bank of St. Louis President James Bullard participates virtually in moderated discussion on the U.S. economy and monetary policy before a National Association of Business Economics webinar
- 22:00 RBNZ Interest Rate Decision
- 22:00 RBNZ Rate Statement
- 23:10 RBA Governor Lowe Speaks
Wednesday, July 12, 2023
- 02:00 Bank of England publishes Financial Stability Report
- 02:00 BoE FPC Meeting Minutes
- 04:00 GBP BoE Gov Bailey Speaks
- 08:30 Federal Reserve Bank of Richmond President Thomas Barkin speaks on inflation before the Anne Arundel County Chamber of Commerce
- 09:45 Federal Reserve Bank of Minneapolis President Neel Kashkari participates in “Banking Solvency and Monetary Policy” panel before the National Bureau of Economic Research Summer Institute: Macro, Money and Financial Frictions.”
- 10:00 Bank of Canada key policy interest rate announcement and Monetary Policy Report
- 11:00 Bank of Canada Governor Tiff Macklem and Senior Deputy Governor Carolyn Rogers hold a press conference to discuss the contents of the Report
- 13:00 Federal Reserve Bank of Atlanta President Raphael Bostic speaks on “Financial and Payments Inclusion” before the Federal Reserve Bank of Atlanta 2023 Payments Inclusion Forum: “Breaking Barriers” –
- 14:00 Federal Reserve issues the Beige Book
- 16:00 Federal Reserve Bank of Cleveland President Loretta Mester speaks on “FedNow” before a session on Instant Payment Systems before the National Bureau of Economic Research Summer Institute: Macro, Money and Financial Frictions,” in Cambridge
- 21:00 Bank of Korea Interest Rate Decision
Thursday, July 13, 2023
- 04:30 BOE Credit Conditions Survey
- 11:00 Philippines’ economic managers including the central bank governor, ministers of finance, budget and economic planning hold Philippine Economic Briefing in Toronto
- 16:30 Fed’s Balance Sheet
- 16:30 Reserve Balances with Federal Reserve Banks
- 19:00 Peru Interest Rate Decision
Friday, July 14, 2023
- None Seen
Federal Reserve FOMC Schedule 2023
- January 31-February 1, 2023 (second day: statement released 1400 EST/1900 GMT; news conference expected 1430 EST/1930 GMT)
- March 21-22 (second day: statement released 1400 EDT/1800 GMT; news conference expected 1430 EDT/1830 GMT)
- May 2-3 (second day: statement released 1400 EDT/1800 GMT; news conference expected 1430 EDT/1830 GMT)
- June 13-14 (second day: statement released 1400 EDT/1800 GMT; news conference expected 1430 EDT/1830 GMT)
- July 25-26 (second day: statement released 1400 EDT/1800 GMT; news conference expected 1430 EDT/1830 GMT)
- September 19-20 (second day: statement released 1400 EDT/1800 GMT; news conference expected 1430 EDT/1830 GMT)
- October 31-November 1 (second day: statement released 1400 EDT/1800 GMT; news conference expected 1430 EDT/1830 GMT)
- December 12-13 (second day: statement released 1400 EST/1900 GMT; news conference expected 1430 EST/1930 GMT)
The Fed with a Strong US Dollar
The strong dollar is likely to negatively affect the US economic outlook and could alter the Federal Reserve terminal interest rate, economists surveyed by Bloomberg said. Just 28% saw the currency strength as unlikely to have any impact.
Latest Key Central Bank Decisions, Reports Archive
2023
- RBA Holds Rates at Ten Year High 4.10%, Signals Hiking Cycle Near End
- Sweden’s Riksbank Raise Rates by 25 bps, Krona Falls to New Record Low Against Euro
- Banco de México Leaves Rates Unchanged at Record High 11.25%, Inflation Risks to Upside
- Central Bank of Turkey Raises Rates First Time in Two Years, By 650 bps to 15.0%, Lira Collapses
- Bank of England Raises Interest Rates to 15-year High 5.00%, Risk of British Recession Increases
- Norway’s Norges Bank Raised Rates by 50 bps to 3.75%, Supports Krone, Fights Inflation
- Philippines Central Bank Held Rates at 6.25%, Highest Since May 2007 as Inflation ModeratesTRADERS COMMUNITY
- Bank Indonesia Keeps Rates Unchanged at Highest Level Since 2009 With Weaker Rupiah
- Swiss National Bank Raised Policy Rate by 25 bps to 1.75%, Will Remain Active in FX Market
- Brazil Central Bank Left Rates Steady at 13.75%, Delete Reference to Possibly Resuming Hiking
- Bank of Japan Keeps Monetary Policy Steady, No Change to JGB Yield Band as Expected
- ECB Tightens Screws, Raises Rates Another 25bps Despite Europe Being in a Recession
- Hong Kong’s Monetary Authority Kept Interest Rates in Lockstep With Fed, Hibor Continues to Rise
- Federal Reserve Leave Rates Unchanged as Expected. See 5.6% Fed Fund Rate at Year End
- Reserve Bank of India Kept its Key Repo Rate at 6.50% as Expected
- Bank of Canada Raises Rates After Five Month Pause by 25bps to 4.75%
- RBA Suprises Again Raising Rates to Ten Year High 4.10%, Australian Dollar Higher
- South Africa Raises Interest Rates 50bps, Rand Falls to All Time Low
- Ahead of Election Runoff Turkey Central Bank Leaves Rates at 8.5% as Lira Hits New Lows
- Reserve Bank of New Zealand Raise Rates by 25bp to 5.50%, Kiwi Sells Off on Peak Rate
- Bank of England Raises Interest Rates 25bps to 4.50%, Inflation Remains Too High
- Federal Reserve Financial Stability Report, Follows Three of the Four Largest Failures in U.S. History
- ECB Raises Rates Another 25bps, Highest Level Since July 2008
- Norway Hikes Interest Rate to 3.25 percent, Concerns About Weak Krone
- Hong Kong’s Monetary Authority Raised Interest Rates 25bps Despite Banking Liquidity at 2008 Lows
- Brazil Central Bank Left Rates Steady for Sixth Month at 13.75%, Less Likely to Resume Hikes
- Federal Reserve Raises Rates 25bps as Expected, Removes Additional Firming May be Appropriate
- Bank Negara Malaysia Surprises by Raising Interest Rates 25 bps to 3%
- Deja Vu as Dollar Yen Soars After Bank of Japan Keeps Monetary Policy Steady, No Change to JGB Yield Band
- Sweden’s Riksbank Raise Rates by 50 bps, However Dovish Tilt Weakens Krona
- An RBA Fit for The Future, 51 Revolutionary Recommendations for Australia’s Central Bank
- Bank Indonesia Keeps Rates Unchanged at Highest Level Since 2009 With Rupiah Stable
- Bank of Canada Holds Rates at 4.50% as Expected, Sees Inflation at 2% End of 2024
- Bank of Korea Keeps Rates Unchanged at 3.50%, Higher Rate Remains Possible
- Reserve Bank of India Surprised Keeping its Key Repo Rate at 6.50%
- Reserve Bank of New Zealand Unexpectantly Raise Rates by 50bp to 5.25% to Highest Since December 2008
- RBA Keeps Rates Steady at Ten Year High 3.6%, Monetary Policy Operates with a Lag
- ECB Raises Rates Another 50bps, Banking Sector Resilient
- Federal Reserve Beige Book Highlights Supply Chain Disruptions Continued to Ease
- Bank of Canada Holds Rates at 4.50% as Expected, USDCAD at Four Month High
- RBA Raises Rates to Ten Year High 3.6%, Less Hawkish Statement
- Reserve Bank of New Zealand Raise Rates by 50bp to 4.75% to Highest Since January 2009
- Banco de México Raises Rates by 50 bps to Record High 11.00%, Reacts to Higher Inflation
- Federal Reserve Hypotheticals For 2023 Bank Stress Tests have Unemployment at 10%
- Sweden’s Riksbank Raise Rates by 50 bps, Moves to Strengthen Krona
- Reserve Bank of India Hike Rates Sixth Time in a Row to 6.50%
- RBA Raises Rates to Ten Year High 3.35%, says Further Hikes Ahead
- ECB Raises Rates Another 50bps, Lagarde Says Another 50bps in March
- Bank of England Raises Interest Rates 50bps to 4.0%, Projects Inflation Likely Peaked
- Hong Kong’s Monetary Authority Raised Interest Rates 25bps Lockstep with US Federal Reserve
- Brazil Central Bank Left Rates Steady for Fourth Month at 13.75%, Cautious Due to Fiscal Risk
- Federal Reserve Raises Rates 25bps as Expected, Disinflationary Process has Started
- Bank of Canada Hikes Rates 25 bps to Highest Level Since 2008, Signals Holding Pattern
- Norway Holds Interest Rate at 2.75 percent, Signaled More Hikes Ahead
- Turkey Central Bank Left Interest Rates Unchanged at 9% As Lira Hits New Lows
- Bank Negara Malaysia Leaves Interest Rates Unchanged to Assess Previous Hikes Impact
- Bank Indonesia Raised Rates Another 25 basis points to Highest Level Since 2009
- Federal Reserve Beige Book Highlights Housing Markets Continued to Weaken
- Dollar Yen Soars After Bank of Japan Keeps Monetary Policy Steady, No Change to JGB Yield Band
- Bank of Korea Raises Rates To 3.50%, Highest level Since August 2008
2022
- Turkey Central Bank Cuts Left Interest Rates Unchanged at 9%, Bond Yield Hits Six Year Low
- Bank Indonesia Raised Rates by 25 basis points to Highest Level Since 2009
- Yen Soars After Bank of Japan Mini Pivot Widens Yield Curve Control Band
- Banco de México Raises Rates by 50 bps to Record High 10.50%, Hints at More Hikes
- ECB Raises Rates Another 50 bps as Expected, Forecasts Higher Inflation
- Bank of England Raises Interest Rates 50bps to 3.5%, Projects Inflation Likely Peaked
- Taiwan Raised Interest Rate by 1.75 percent, Highest Since 2015
- Norway Raised Interest Rate by 25 bps to 2.75 percent, Highest Since 2009
- Swiss National Bank Raises Policy Rate by 50 bps to 1.00%, as expected
- Philippines Central Bank Raised Rates by 50 basis points to 5.50% with Inflation at 14 Year Highs
- Hong Kong’s Monetary Authority Raised Interest Rates in Lockstep with US Federal Reserve
- Federal Reserve Raises Rates 50bps as Expected, Hawkish Revisions to Unemployment and Inflation
- Bank of Canada Hikes Rates 50 bps to Highest Level Since 2008
- Reserve Bank of India Hike Rates Fifth Time in a Row to 6.25%
- RBA Raises Rates to Ten Year High 3.10%, says Inflation in Australia Too High
- Federal Reserve Beige Book Highlights Higher Interest Rates Further Dented Home Sales
- NY Fed Williams Expects US Jobless Rate to Rise from 3.7% to 4.5-5.0%
- Turkey Central Bank Cuts Interest Rates Another 150bp Ending Easing Cycle
- Sweden’s Riksbank Raise Rates by 75 bps to the Highest Level Since December 2008
- South Africa Raises Interest Rates 75bps to Tame Inflation
- Bank of Korea Raises Rates To 3.25%, Highest level Since June 2012
- Reserve Bank of New Zealand Raise Rates by 75bp to 4.25% to Highest Since January 2009
- Appreciation of Swiss Franc Guards Against Inflation says SNBs Jordan
- Fed Vice Chair Brainard says Slower Pace of Rate Increases Probably Soon
- Bank of England Raises Interest Rates 75bps to 3% in Biggest Rise in 30 Years
- Norway Raised Interest Rate by 25bps, Norwegian Crown Fell Against Euro
- Markets Reverse Sharply on Feds Powell Statements, What Does it all Mean?
- Federal Reserve Again Raises Rates 75bps as Expected, Hints at Possibly Smaller Hikes
- Japan Spent ¥6.35 trillion in October on Intervention to Support the Yen
- ECB Raises Rates Another 75 bps as Expected TLTRO Terms and Conditions Recalibrated
- Bank Indonesia Raised Rates by Another 50 basis points to 4.75% to Tame Inflation
- Federal Reserve Beige Book Highlights Employment Strength as Price Increases Generally Moderate
- RBA says Financial Stability Risks Have Increased Globally
- Banco de México Raised Rates for 11th Straight Time to Record 9.25%
- Cable Pounded Again After Indecisive Bank of England Statement
- Japan Intervened to Support Yen for First Time Since 1998 After BOJ Decision
- Swiss National Bank Raises Policy Rate by 75 bps to 0.50%, Swiss Franc Falls sharply
- Philippines Central Bank Raised Rates by 50 basis points to 4.25%, Moves to Support Peso
- Bank of Japan Monetary Policy Unchanged Sending Yen to a Fresh 24-Year Low
- Brazil Central Bank Pauses Rates at 13.75%, after Inflation Eased Below 10%
- Federal Reserve Gives All Banks a Pass in Annual Bank Stress Test
For a Complete Macro and Micro Market Overview Visit Our Traders Market Weekly
Sources: TC WSJ Bloomberg Scotia Bank
Trade Smart
From The TradersCommunity Research Desk