<p>The PBoC left its LPR rates unchanged as expected: <strong>LPR 1-year</strong> 3.45%.<strong>LPR 5-year</strong> 4.20%.</p>
<p>PBoCECB’s Wunsch (hawk – voter) gave a clear signal that the ECB is going to hold rates steady in the next two months, but warned that an easing in financial conditions due to rate cuts bets could prompt further rate hikes: <em>Bets on rate cuts risk prompting rate hikes instead.</em></p>
<p>Markets are optimistic to rule out further rate hikes. But rates should stay unchanged in December and January. </p>
<p>ECB’s Wunsch</p>
<p>ECB’s de Cos (dove – voter) pushed back against rate cuts bets: <em>ECB is not expected return to forward guidance on monetary policy. It is absolutely premature to start talking about interest rates cuts.</em></p>
<p>ECB’s de Cos</p>
<p>The US Leading Economic Index (LEI) posted another decline coming in at -0.8% vs. -0.7% expected and -0.7% prior. This is the 19th consecutive monthly decline. US LEI Index</p>
<p>Fed’s Barkin (neutral – non voter) repeated that the Fed remains data-dependent and resolute to keep conditions tighter for longer given the uncertainty around inflation: <em>Not a big time to offering forward guidance. Fed will respond to data. Overall core inflation numbers are coming down nicely, but a lot of that is for goods. Business contacts on the ground report they are still raising prices faster than before pandemic. Continue to view inflation as a stubborn which feeds the higher for longer approach. Skilled trades continue to see wage pressures. Inflation does seem to be settling but the job is not done.</em>Fed’s Barkin</p>
<p>BoE’s Governor Bailey (neutral – voter) reaffirmed the BoE’s “higher for longer” stance given the tightness in the labour market and elevated wage growth: <em>Far too early to be thinking about rate cuts. Returning inflation to 2% target remains our absolute priority. When inflation is high, we take no chances. The tragic events in the Middle East have added upside risk to energy prices. Labor market remains tight despite softening recently. Wage inflation remains elevated. We must be alert to any second-round effects of higher food and energy prices. The evolution of food prices will matter for wage growth looking ahead. The squeeze on real incomes from higher food and energy prices may still be influencing wage demands. Inflation data for October released last week were welcome news, it’s much too early to declare victory. We must watch for further signs of inflation, persistence and that may require interest rates to rise again. How long a restrictive stance will be needed will ultimately depend on what incoming data tells us. The MPC’s latest projections indicate that monetary policy is likely to be restrictive for quite some time yet.</em> BoE’s Governor Bailey</p>
<p>ECB’s Villeroy (neutral – voter) threw forward guidance out of the window and reaffirmed the ECB’s “wait and see” stance: <em>Our reliance on forward guidance was excessive, we should be more modest with future guidance. We should expect more bond volatility, renewed increases would be another reason not to hike rates. We have to discontinue our PEPP reinvestments in due time, and possibly earlier then the end of 2024. On our inflation target, I am not fixated on 2% to the nearest decimal place. The latest developments in Israel and the oil market shouldn’t significantly change downward inflation trend. We should and can avoid recession, a soft-landing path is more likely. The question quickly shifted from “When will we stop hiking?” to “When will we start cutting?” See rates plateauing for at least the next several meetings and the next few quarters.</em> ECB’s Villeroy</p>
<p>RBA’s Governor Bullock remains optimistic on the labour market side but warns against changes in inflation expectations: <em>Optimistic that the gains made in employment can be kept. Says inflation is a crucial challenge in the next one or two years. Says inflation is not only about supply issues, gasoline and rent, that there is still ongoing and underlying demand. If inflation expectations adjust higher in response that’s a problem. We haven’t had any productivity growth in Australia for a number of years.</em> RBA Governor Bullock</p>
<p>The RBA released the Minutes of its November Monetary Policy Meeting, which were more hawkish than expected: <em>Considered case for raising rates or holding steady. Board saw “credible case” that a rate rise was not needed at this meeting. But judged case for hiking was the stronger one given inflation risks had increased. Whether further tightening required would depend on data, assessment of risks. Saw risk that inflation expectations could increase if rates were not raised. Important to prevent even a modest further increase in inflation expectations. Growing mindset among businesses that cost increases could be passed on to customers. Noted staff forecasts for inflation at meeting assumed one or two more rate rises. Board noted cash rate remained below that in many other countries. Rising house prices could indicate policy was not especially restrictive. Surge in domestic population growth made it harder to judge resilience of economy. Inflation and economy were slowing, geopolitical and global outlook uncertain. An escalation in tensions in the middle east could be a drag on global growth.</em> RBA</p>
<p>BoE’s Governor Bailey and other BoE members reaffirmed their commitment to keep monetary policy tight due to inflation persistence: <em>Markets are putting too much weight on current data releases. Need to be concerned about potential inflation persistence. Need to cement commitment to 2% inflation target (Mann). More tightness in monetary policy now is important (Mann). Speed limit of UK economy is low now (Ramsden). We are very clear in distancing ourselves from market expectations (Ramsden). Fall in headline inflation is not a good guide on inflation trend (Haskel). We are on target to get inflation back to 2%. Latest inflation fall is good news, largely expected. There are some signs that wage growth is coming off. But there is weakening in some parts of the labor market. Inefficient labor market is one upside risk to inflation. Approach to monetary policy can be characterized as being watchful, responsive. Would not rule out having to raise the bank rate further in the future.</em> BoE</p>
<p>The Canadian CPI fell further on all measures, which is a welcome news for the BoC: <em>CPI Y/Y 3.1% vs. 3.2% expected and 3.8% prior. CPI M/M 0.1% vs. 0.1% expected and -0.1% prior. BoC Core Y/Y 2.7% vs. 2.8% prior. BoC Core M/M 0.3% vs. -0.1% prior. CPI Median 3.6% vs. 3.6% expected and 3.9% prior (revised from 3.9%). CPI Trimmed-Mean 3.5% vs. 3.6% expected and 3.7% prior. CPI Common 4.2% vs. 4.3% expected and 4.4% prior. Canada Core Inflation Measures</em></p>
<p>ECB’s President Lagarde (neutral – voter) reaffirmed the ECB’s “wait and see “ approach: <em>We have made those future decisions conditional on the incoming data meaning that we can act if we see rising risks of missing our inflation target. The energy and supply chain shocks which played a substantial role in last year’s inflation surge are now unwinding. We expect headline inflation to rise again slightly in the coming months. Our monetary policy is in a phase where we need to be attentive to the different forces affecting inflation, but always firmly focused on our mandate. We will need to remain attentive until we have firm evidence that the conditions are in place for inflation to return sustainably to our goal. Given the scale of our policy adjustment, we can now allow some time for them to unfold. This is not the time to start declaring victory. Our assessment is that strong wage growth mainly reflects catch-up effects related to past inflation, rather than a self-fulfilling dynamic. We need to remain focused on bringing inflation back to our target and not rush to premature conclusions based on short-term developments.</em> ECB’s Lagarde</p>
<p>The Fed released the Minutes of its November FOMC Monetary Policy Meeting, which didn’t contain anything new: <em>All Participants: Agreed that monetary policy should remain restrictive until inflation sustainably moves towards the Committee’s objective. Judged maintaining the federal funds rate at 5¼ to 5½ percent as appropriate. Agreed on the necessity of reducing the Federal Reserve’s securities holdings. Agreed that every policy decision should be based on incoming information and its implications for the economic outlook and risk balance. Most Participants: Continued to see upside risks to inflation, including potential prolonged imbalances in aggregate demand and supply. Many Participants: Commented on the significant tightening of financial conditions due to higher long-term yields. Observed the contribution of term premiums to the rise in longer-term Treasury yields. Noted downside risks to economic activity, including larger-than-expected effects of tightening financial and credit conditions. Several Participants: Noted potential cyber risks and the importance of readiness for such threats. Commented on the recent decline in the use of the ON RRP facility. Emphasized the importance of banks being prepared to use Federal Reserve liquidity facilities. Some Participants: Noted benefits for businesses from improved hiring ability, supply chains, and reduced input costs. Reported difficulties for businesses in passing on cost increases to customers. Expressed concern over the sustainability of increased labor supply. Highlighted challenges for small businesses due to tighter financial and credit conditions. A Few Participants: Noted nominal wages…</em></p>
Check out the Weekly Market Recap (20-24 November) for the latest updates!
