Observe the US and even the global markets, central banks in various countries are increasingly inclined to use 50 basis points as a possible measure for the next rate hike. ECB spokesman became less tough and Britain rediscovered austerity policy should confirm the rebound of interest rate .
Look at Feder . After the data on CPI in the United States was released, the market agreed to raise interest rates by 50 basis points in December. Fed officials have tried and achieved some success to prevent the over-decreasing pricing of terminal interest rates, which has since hovered slightly below 5%, but that has not prevented longer-term rates, such as the 10-year US Treasury falling below 3.7%. Yesterday's 20-year Treasury bond auction also released very good indicators, and people's appetite seems to have recovered to a longer duration.
in euro zone , ECB officials also seem to have lowered their tough attitude. Markets should note this when the hawk Holzmann, the Austrian central bank, noticed that too strong austerity would not only lead to economic stagnation, but also to recession. Even with the new ECB response function, officials seem to have to endure so much pain.
New preference for duration risk is flattening the yield curve
(Source: )
ING wrote: "The hawks of the ECB may require more progress in quantitative austerity."
ECB's shift was later confirmed by a Bloomberg report that showed a lack of motivation to raise further 75 basis points. Given that the market is still focusing on the 20% chance of 12 large fluctuations, there is still room for a slight decline. Central bank governors seem to be more concerned about the risk of recession, which seems to confirm that rising interest rates also pushes the 10-year Bund yield to below 2%.
But be aware that once the key interest rates are close to neutral levels, currently at about 2%, the ECB may eventually slow down, which is not news. Given the December meeting, we remind the ECB hawks that may demand more progress on quantitative austerity in exchange for less radical action on interest rates. Therefore, the monetary policy tightening may become increasingly dependent on the balance sheet.
Bank of England's interest rate hike demand decreases
Speaking of the Bank of England, the next expected policy move is more closely linked to fiscal policy. This puts the focus directly on today’s fall statement, which will outline the government’s fiscal plans. The government's main task with focusing on financial markets will be to rebuild the credibility lost in September's ill-fated mini-budget. To this end, the IBR projection has been a great success with the new plan. Look at the 10-year Treasury yield , they have indeed fallen back to the level just before the September budget was announced.
"The main task of the British government will be to rebuild the credibility lost in the ill-fated mini budget in September," ING mentioned.
Perhaps the greater risk is that the government decided to push the austerity policy too far under the impression of the chaotic experience after the last budget, which may allow the market to further digest their expectations of the Bank of England's rate hike. Long-term yields may also fall further, although our expectation is that the overall curve is steeper.
Remember that despite this, the effective debt that private investors must bear will increase significantly. Reuters 's issuance will drop to £185 billion in fiscal year 2022/23, but will rise to £240 billion in 2023/24, according to a survey of Phnom Penh bond traders. Crucially, the Bank of England's quantitative austerity policy must be added.
Private investors will be required to increase their Treasury holdings in record quantities in fiscal 2023-24
(Source: Dutch International Group)
Looking at today (17th) Economic events and market views:
The main event on the economic calendar is the fall statement of the British government, and the UK " Financial Times " reported that it may need to save up to £60 billion, higher than expected. The report also shows that the Chancellor will focus more on reducing spending than increasing taxes.
As ING economists point out, the impact on the economy will depend on how much burden it puts on consumers by increasing taxes and how quickly these changes occur. Quite a lot of pain could be postponed until after the 2024 election. Another thing worth noting is the details of how the government intends to restructure its flagship energy price guarantee, which could have a more direct impact on funding demand.
Apart from the UK, the focus remains on central bank spokespersons and how they can bridge the gap between signaling slowing down and ensuring financial conditions don’t relax too much. Today, the Fed's Brad, Mester, Jefferson and Kashkari are arranged. In terms of
data, the focus is on the US real estate market, which should weaken due to the rapid rise in mortgage costs, as demand plummeted. There are also the number of first-time unemployment claims and the Philadelphia and Kansas Fed Activity Index on the calendar. euro zone will usher in the final value of CPI in October.
Today's supply of short-term bonds and inflation-linked securities from France, and 3- to 20-year bonds from Spain.
This article is derived from FX168 Global Investment
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