This week’s main event was Chair Powell’s speech at the Riksbank International Symposium and the reaction to US CPI, the reaction was muted to a soft report, outside of rising Services inflation. The Bank of Korea raised the Base Rate to 3.50%, the highest level since late 2008 as expected. Bank of England policymaker Mann said more needs to be done on rates and there is no risk of overtightening yet. We had a slew of Fed speakers but nothing alarming. In the week ahead we get six central banks delivering policy decisions. The Bank of Japan, People’s Bank of China, Norges Bank, Bank Negara Malaysia Bank, Indonesia and Central Bank of Turkey all have monetary policy meetings.
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.
Central Bank Weekly Analysis and Outlook – Banker dynamics are complex. There are myriad facets to analyze and contemplate.
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.
Weekly Recap and Outlook
Chair Powell and other’s speeches at the Riksbank International Symposium were not eventful. The Bank of Korea raised the Base Rate to 3.50%, the highest level since late 2008 as expected. Bank of England policymaker Mann said more needs to be done on rates and there is no risk of overtightening yet. We had a slew of Fed speakers but nothing alarming. European Central Bank policymaker Kazaks said that rates should be raised into restrictive territory and that he does not expect rate cuts to take place before the end of the year.
In the week ahead we get six central banks delivering policy decisions.
The Bank of Japan, People’s Bank of China, Norges Bank, Bank Negara Malaysia Bank, Indonesia and Central Bank of Turkey all have monetary policy meetings.
In the week ahead we get six central banks delivering policy decisions. Of the six, two may be influential to global markets and the other four are likely to just have regional influence. The Bank of Japan is the key focus, we have the Yen continue to rally into 2023 as the USD hits seven-month lows. This BOJ meeting is the sequel to the JGB massacre on December 19th when the BoJ left its policy balance rate target unchanged and also left the mid-point of its 10-year yield target at 0% but widened the bands around 0% +/-25bps to +/- 50bps on that target.
We continue keep eyes on the bond market, as we have said the US 10-year Treasury peaked around 4.33% on the same day as the US dollar peaked against the yen USDJPY 151.95 on October 21. The BOJ had spent billions intervening and by the time the BOJ met late last month and surprised the market with the Yield control change the 10-year yield was consolidating after falling to around 3.40%, and the dollar was in a range between JPY134-JPY138.
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.
Highlights – Federal Reserve
- Federal Reserve Credit declined $4.9bn last week to $8.502 TN.
- Fed Credit was down $399bn from the June 22nd peak.
- Over the past 173 weeks, Fed Credit expanded $4.775 TN, or 128%.
- Fed Credit inflated $5.691 Trillion, or 202%, over the past 530 weeks.
- Fed holdings for foreign owners of Treasury, Agency Debt jumped $9.4bn last week at $3.325 TN.
- “Custody holdings” were down $90.4bn, or 2.6%, y-o-y.
Central Bank Highlights This Past Week:
Central Bank Week Ahead:
- The most notable event will The Bank of Japan, the sequel to the JGB massacre on December 19th when the BoJ left its policy balance rate target unchanged and also left the mid-point of its 10-year yield target at 0% but widened the bands around 0% +/-25bps to +/- 50bps on that target. Markets immediately took the yield to the top end of that new range.
- The People’s Bank of China may once again cut the 1-year Medium-Term Lending Facility Rate by 10bps on Monday that could set up Chinese banks to cut the 5-year Loan Prime Rate on Friday that is key to the property market.
- Norges Bank guided that the policy rate will be raised to 3% probably “in the first quarter of next year” while also revising its projection to reflect rate cuts later on. That last hike could arrive this Thursday, or Norges could delay until the March decision with fresh forecasts and in the wake of the softer than expected CPI reading for December.
- Bank Negara Malaysia is expected to hike by another 25bps this week after it guided in November that continued hiking would be at a “measured and gradual” pace. Since then the ringgit’s 9% appreciation to the generally softer USD since then may be viewed as cause to pause or stop the rate hike cycle.
- Bank Indonesia another 25bps hike is expected on Thursday that would lift the 7-day reverse repo rate to 5.75%. The rupiah has also been among the weaker performers among Asian crosses which may further motivate tightening.
- Central Bank of Turkey no change is expected to the one-week repo rate following December’s pause, inflation’s deceleration in December to a still very high 64% y/y. The lira has underperformed most other currencies that have gained against the USD since the central bank’s last decision.
This Week’s Interest Rate Announcements (Time E.T.)
Tuesday January 17, 2023
- 20:00 BoJ Interest Rate Decision
Thursday January 19, 2023
- 02:00 Bank Negara Malaysia Interest Rate Decision
- 02:30 Bank Indonesia Interest Rate Decision
- 04:00 Norges Bank Interest Rate Decision
- 06:00 Central Bank of Turkey Interest Rate Decision
- 20:15 PBOC Loan Prime Rate
This Week’s Central Bank Speeches, Meetings (Time E.T.)
Monday January 16, 2023
- All Day Holiday United States – Martin Luther King, Jr. Day
- 03:00 World Economic Forum Annual Meetings
- 10:00 BoE Gov Bailey Speaks
- 10:30 BoC Business Outlook Survey
- 21:00 NBS Press Conference
Tuesday January 17, 2023
- 03:00 ECB Supervisory Board Member Fernandez-Bollo Speaks
- 03:00 World Economic Forum Annual Meetings
- 15:00 Fed Williams Speech
- 20:00 BoJ Interest Rate Decision, BoJ Quarterly Outlook Report
Wednesday January 18, 2023
- 03:00 World Economic Forum Annual Meetings
- 14:00 Fed Harker Speech
- 14:00 Fed Beige Book
- 17:00 Fed Logan Speech
Thursday January 19, 2023
- 02:00 Bank Negara Malaysia Interest Rate Decision
- 02:30 Bank Indonesia Interest Rate Decision
- 03:00 World Economic Forum Annual Meetings
- 04:00 Norges Bank Interest Rate Decision
- 05:30 ECB President Lagarde Speech
- 06:00 Central Bank of Turkey Interest Rate Decision
- 07:30 ECB Monetary Policy Meeting Accounts
- 09:00 Fed Collins Speech
- 12:00 ECB Schnabel Speech
- 13:15 Fed Brainard Speech
- 18:35 Fed Williams Speech
- 20:15 PBOC Loan Prime Rate
Friday January 20, 2023
- 03:00 SNB Chairman Thomas Jordan speaks
- 03:00 World Economic Forum Annual Meetings
- 04:00 EUR German Buba President Nagel Speaks
- 05:00 ECB President Lagarde Speech
- 09:00 Fed Harker Speech
- 10:30 ECB’s Elderson Speaks
- 13:00 Fed Waller Speech
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.
The survey of 40 economists was conducted Oct. 21-26.
- 44% said they believed the Fed could fully complete its aggressive rate tightening despite possible stresses.
- 38% said the policy makers would be forced to cut rates earlier than expected and
- 18% said the Fed would not be able to raise rates as much as planned.
- Survey respondents expect rates to peak at 5% early next year and a majority of the economists now expect a US and global recession.
The Fed as expected raised another 50 basis-points last meeting. The median estimate for the terminal rate in 2023 had been raised to 5.10% versus the September projection of 4.60%. The value of the dollar is an important component to lowering inflation. A stronger dollar tends to dampen inflation by reducing the costs of imports and lowering domestic production as it raises export prices.
“Usually the trade deficit would balloon when the dollar appreciated as much as we had seen since last year. But that effect has been curiously absent so far, even as we are already about five quarters into the appreciation process. One possible explanation is that US is increasing its exports in energy products. The fact that this tightening channel of dollar is absent means that the dollar appreciation is less contractionary to the economy than historically.”
Anna Wong (Bloomberg chief US economist)
Latest Key Central Bank Decisions, Reports Archive
2023
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