Ian Reynolds
Breaking: Russian authorities say dozens dead in attack on Moscow concert venue [FT]
Breaking: Tech giants under siege: Apple lawsuit: US accuses tech giant of monopolising smartphone market [BBC]
Breaking: US Backs $50 Billion Ukraine Bond Using Frozen Russia Assets [Bloomberg]
The Die Is Cast
It was Central Bank Week with the Bank of Japan, Reserve Bank of Australia, Federal Reserve, Bank of England and the Swiss National Bank all holding policy setting meetings with the following results
- BoJ hikes
- SNB cuts
- FED, BoE & RBA hold
Japan is in a situation of it's own creation and rates have to rise because actually they can't go down (can they?).
What's clear from the press conferences this weeks are that the policy decision makers of western central banks are just itching to cut rates. And the die is now cast.
Gone is the overtly data driven approach, which means they don't know, and now comes the familiar decision, too late and without any strategy.
So something has to give and that would appear to be the global 2% inflation target. Look for the rhetoric now to become "in the 2-2 1/2 % range" or similar.
With inflation now stubbornly elevated this could be another policy error. Remember when inflation was "transitory"?
OK so why might we have a decision that can't be changed.
- US elections. Powell will under pressure to cut politically
- US Govt has to refinance US$7T of debt this year
- Commercial Real Estate: banks and real estate owners need interest rate relief
- Balance sheets globally are contaminated by government bond holdings under water
- Europe is in recession
- China is in a sea of pain
Ok that's enough.
Inflation targets untethered
Mohamed El-Erian on inflation targets changing [X]
Bank of Japan Hikes
USD / YEN Daily
In mature economies, hiking interest rates normally makes the currency appreciate because higher rates will attract investment flows. The move could have been priced in, for sure, by the market but USD / YEN taking off was a big surprise and it's now up at levels where the BoJ has been forced to intervene to support the Yen
Conversely in an economy where the currency depreciates on rate hikes, this can lead to the hyperinflation cycle. It's way too early to make this judgement but the Ministry of Finance is in a really really tough spot. Debt-to-GDP > 250% and a rapidly ageing population means it's going to increasing difficult to fund the government with higher rates. The BoJ already owns more that half of the government debt
Changes in the Monetary Policy Framework [BoJ]
FED Still Wants to Cut Despite Inflation Pressures
A seemingly confident Powell ignores inflation and commits to interest rate cuts this year.
Maybe he knows that the jobs market is finally going to break and that when it does, it happens fast.
Global Rate Cuts Coming
UK inflation 'moving in right direction' for rate cuts, Bank of England says [Reuters]
Swiss central bank cuts rates in surprise move, getting ahead of global peers [Reuters]
In The Background
China's economy has bottomed at least for now but the macro picture is extreme. The real estate debacle so far has only played for those unfortunate consumers forced to pay for a house before it's built.
It is being played out by the property developers currently, and in turn it will play out for banks and other lenders.
The backdrop is the People's Bank of China continuously buying Gold, authorities encouraging the population to buy Gold and a marked difference in price of Gold and Silver in China, as opposed to outside of China.
Chinese authorities accuse Evergrande of inflating revenues by $80bn [FT]
China Industrial Production February 2024
The Greatest Trade Ever Is Coming
The tokenisation of financial assets is coming. Stocks, bonds, commodities.
The cost savings and efficiencies are immense and Blackrock has filed with the SEC to launch a tokenisation fund.
BlackRock just filed with the SEC to launch tokenisation fund [X]
It's no wonder that Wall St embraced the Bitcoin spot ETFs with such enthusiasm. Breaking down the regulation and compliance walls leads us to a paradigm shift in how the world's biggest industry works.
Like the BTP / Bund spread trade when Italy entered the EU when everyone won, this will be the biggest winning trade of anyone's lives if they're in. Not specifically the Blackrock fund of course but we all know the destination, we just need to make sure we're on the right train.
Europe
Inflation stagnates higher than desired
EU CPI February 2024
Australia
RBA holds, any hiking bias now removed.
RBA Overhaul Hits Snag as Opposition Plans to Move Amendment [Bloomberg]
Corporate insolvencies spike to a decade high
This is why the RBA is no longer warning of another rate rise [AFR]
Australia Unemployment February 2024
What's Next
US Core PCE next week over the Easter holidays is the only important release although a lower than expected US GDP would reinforce Powell's stance.
This Week's Important Economic Indicators [London time]
