Global Market Weekly Recap: September 18 – 22, 2023
Notable News & Economic Updates:
Broad Market Risk-on Arguments
The Swiss National Bank held their main policy rate at 1.75% on Thursday, slightly unexpected, and kept the door open for more action if needed.
The Bank of England held their main policy rate at 5.25% on Thursday, largely expected after a lower-than-expected U.K. CPI read earlier, with a vote of 5-4 for holding.
U.S. Flash Manufacturing PMI for September: 48.9 vs. 47.9; greater hiring activity but sales & demand environment remains muted.
U.K. Flash Manufacturing PMI for September: 44.2 vs. 43.0 previous.
The Bank of Japan kept ultra-low interest rates unchanged at -0.10% as expected; Gov. Ueda said that they’re “monitoring currency moves carefully” for their impact on inflation.
Broad Market Risk-off Arguments
Canada CPI for August: 4.0% y/y (3.9% y/y forecast; 3.3% y/y previous); Core CPI at 3.3% y/y (3.5% y/y forecast; 3.2% y/y previous).
Eurozone’s final headline CPI was adjusted from 5.3% to 5.2% y/y; core CPI steady at 5.3% y/y.
On Wednesday, the Fed kept its Fed funds target range at 5.25% – 5.50% as expected; The Fed’s dot plot forecasts pointed to at least one more rate hike in 2023 and “only” a 50bps rate cut in 2024 (from a 100bps rate cut estimated in June).
Other Central Bank Action:
- Sweden’s central bank lifted their main policy rate by 25 bps to 4.00%, signalled potentially more hikes ahead as inflation pressure is still too high.
- Norway’s central bank hiked their key interest rate by 25 bps to 4.25%.
- Turkey’s central bank raised their main policy rate from 25% to 30%, the fourth hike in a row.
Russia temporarily banned fuel exports to stabilize domestic fuel market on Thursday. No expectations were set on when the ban will be lifted.
HCOB Flash Eurozone PMI for September: 43.4 vs. 43.5 in August; falling confidence in year-ahead outlook as new orders fall; input prices rose at a much faster pace than output prices.
Japan Chief Cabinet Secretary Matsuno: The government is monitoring currency developments “with a high sense of urgency,” and warned that it’s not “ruling out any options”.
Japan Flash Manufacturing PMI for September: 48.6 vs. 48.9 previous; Services PMI was 53.3 vs. 54.3.
Global Market Weekly Recap
The week began with a lacklustre start akin to a Monday morning commute, marked by low volatility on Monday and Tuesday as traders eagerly awaited the financial events lined up for Wednesday.
Wednesday brought the most anticipated event of the week: the FOMC monetary policy statement. As widely expected, the Federal Reserve kept its Fed funds target range unchanged at 5.25% – 5.50%. However, the real twist came from their dot plot forecasts, which hinted at more rate hikes in 2023 and a modest 50 basis points rate cut in 2024.
This unexpected development sent shockwaves through the market. Traders, hoping for signs of significant rate cuts in the coming year due to signs of weakening economic growth, had to recalibrate their expectations. The U.S. dollar and bond yields surged, while gold, cryptocurrencies, and stocks plummeted.
Thursday witnessed central bank actions in full swing with statements from five central banks. The Bank of England's monetary policy statement was particularly notable. Following a disappointing U.K. CPI inflation report, they decided to keep rates unchanged, but the vote was a tense 5-4 decision, reminiscent of a dispute over the last biscuit at a British afternoon tea.
Over in Switzerland, the Swiss National Bank (SNB) surprised some by maintaining their main policy interest rate at 1.75%, rather than raising it to 2.00% as expected. This decision, possibly influenced by recent economic challenges and soft inflation reports, led to a significant negative reaction in the Swiss franc.
Elsewhere, some central banks, including Sweden, Norway, and Turkey, adopted hawkish stances by raising their key policy interest rates in response to persistently high inflation rates.
Despite these varied central bank actions, market trends largely followed the reactions to the Federal Reserve's announcement, with risk assets declining further, while the U.S. dollar and bond yields remained elevated. An exception was oil prices, which rebounded after Russia temporarily banned fuel exports to address domestic fuel market issues.
Friday brought fresh Flash PMI data from around the world. Europe and Asia continued to show signs of economic contraction, while the U.S. demonstrated mixed performance, with services doing well and manufacturing struggling.
The market's response to the PMI data was relatively muted, possibly due to the previous session's high volatility and the data aligning with expectations.
In summary, it was another strong week for the U.S. dollar and bond yields, with the New Zealand dollar emerging as the standout winner among major currencies. Conversely, the British pound was the major currency loser of the week, reflecting shifting expectations for restrictive monetary policy by the Bank of England.
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