In today’s briefing:
- Federal Reserve Signals “Victory” over Inflation Setting the Stage for the Next Round of Inflation
- March FOMC Meeting Conclusion: Powell Likes His Balance Sheet ‘BIG!
- China Economics: Refusal to Cut Rates Suggests Painful Tradeoffs
- Back-Testing the Impact of National Assembly Elections on the Korean Stock Market
- 5 Things We Watch: BoJ, Germany, Commodities, Canada, Inflation
- India: Merchandise and Services Both Help Toward a CA Surplus in CY24
- Indonesia Policy Rate 6.0% (consensus 6.0%) in Mar-24
- Norway Watch: Cheat sheet to assessing Norges Banks rate path
- UK: Sticky Services Persist in Feb-24
Federal Reserve Signals “Victory” over Inflation Setting the Stage for the Next Round of Inflation
- Three 25 bps rate cuts signaled for the remainder of 2024 and 175bps by the end of 2025
- Bank of Japan, despite a rate hike keeps monetary policy extremely accommodative
- Reported inflation will return making sector selection in equities key
March FOMC Meeting Conclusion: Powell Likes His Balance Sheet ‘BIG!
- The Fed stuck with its intention to cut rates three times this year while penciling in one rate cut less for 2025 and 2026.
- The key takeaway was that Powell is really keen on maintaining ample liquidity instead of what he calls abundant liquidity now.
- Stocks, Gold, and Bitcoin love ample liquidity, especially when it becomes abundant again when the economy heads south.
China Economics: Refusal to Cut Rates Suggests Painful Tradeoffs
- While industrial production data for early-2024 was an upside surprise, it would not do to get carried away by a few favourable data points.
- The glimmers of hope in the data may be behind the central bank’s decision not to cut rates despite feeble price pressures.
- However, monetary policy tradeoffs have become more stark given the downward pressures on the yuan.
Back-Testing the Impact of National Assembly Elections on the Korean Stock Market
- In this insight, we provide a back-testing analysis of the impact of the National Assembly Elections on the Korean stock market.
- KOSPI tends to display positive price performance one month and three months prior to the election date leading up to the election date.
- On the other hand, KOSPI tends to decline one month and three months post the election date. We believe that post National Assembly Election, KOSPI could face greater headwinds.
5 Things We Watch: BoJ, Germany, Commodities, Canada, Inflation
- This week we are looking at the BoJ hiking rates for the first time since 2007 and its effects on the Japanese economy.
- Afterwards we will have a look at the improving sentiment in Germany and then at a dive into the commodity rally currently underway.
- The we’ll talk about Canada where rates finally look to be impacting the economy and then we’ll end up with a short look at US inflation expectations.
India: Merchandise and Services Both Help Toward a CA Surplus in CY24
- Merchandise exports grew 11.9%YoY in Feb’24 (+7.5%YoY in Jan-Feb’24) amid a broad-based rebound in engineering, pharma, chemical, electronic exports. With exports outpacing imports, the merchandise deficit declined 8.2%YoY in Apr’23-Feb’24.
- Services exports are robust, with many hitherto-imported services also moving onshore. The services trade surplus widened 20%YoY in Apr’23-Jan’24, likely enabling the FY24 CAD to shrink to 0.6% of GDP.
- With goods exports set to accelerate, and crude oil prices relatively tame, we expect the current account to swing to a surplus in CY24 (and +0.5% of GDP in FY25).
Indonesia Policy Rate 6.0% (consensus 6.0%) in Mar-24
- Bank Indonesia unsurprisingly maintained the BI-Rate at 6.00% amid a cautiously optimistic global economic outlook and strong domestic growth projections for 2024.
- Future policy decisions will continue to emphasize Rupiah stability and keeping inflation within the 2.5 ± 1% target amid external uncertainties and internal pressures from volatile food prices.
- Bank Indonesia remains committed to supporting sustainable economic growth and expanding financial inclusion through macroprudential relaxations and advancing payment system digitalization, alongside strengthening international cooperation and policy synergies at the national level.
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Norway Watch: Cheat sheet to assessing Norges Banks rate path
- Ahead of the Norges Bank meeting tomorrow morning, we’ll elaborate on the mechanics behind the rate path model at Norges Bank and how the new path will likely look tomorrow.
- The below visualization is a great rule of thumb on the impact of various categories in the mechanical adjustment to the rate path.
- If I44 (NOK import weighted) increases by 1% relative to the base-case, it impacts the curve by 10bps.
UK: Sticky Services Persist in Feb-24
- UK CPI inflation slowed 0.1pp further than expected to 3.4% in February amid soft goods prices, but services prices were strong again by only easing to 6.1%.
- Underlying inflation pressures remain sticky, with the median inflationary impulse stuck close to 3%. These data remain inconsistent with a sustainable return to the 2% target.
- Proximity to the target relies upon the temporary drag from falling energy prices and is not a reason to cut. Wage growth is too high, fuelling resilience that postpones cuts.
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