Economy
Latest world economic news: what’s in store for the market after Powell’s speech?
Latest world economic news: after U.S. Federal Reserve Chairman Jerome Powell stated clearly and precisely at a central bank meeting in Jackson Hole last Friday that he would use all available tools to curb inflation, European stock indexes such as the Ibex 35, CAC 40, DAX went into the red zone following a sharp drop on Wall Street and the market in Asia.
That the priority is given to fighting inflation, as noted by Link Securities, says Powell’s statement: The U.S. interest rate will continue to rise until it reaches a level where the Fed sees inflation going down, and the rate will remain at that level for some time, despite the damage to economic growth and the labor market.
World economic news now — what to expect from Powell’s speech?
As for a rate hike in September, it will all depend on data coming out in the coming weeks, though Powell is not ruling out another unusually large rate hike. The rate barometer suggests a 67% chance that the Fed will raise rates by 75 basis points in September.
Business activity (PMI) data show that orders are falling and consumption continues to decline. Corporate earnings and employment reports will continue to show the effects of a rate hike. As long as employment is high, it forces the Fed to risk sacrificing economic growth. As growth worsens, however, the market will begin to discount changes in monetary policy.
As the experts at Renta 4 note, the rate will continue to rise, probably from 2.25%-2.50% today to a ceiling of 3.75%-4% and will remain at these levels longer than expected, as the Fed is willing to sacrifice growth and employment in favor of the ability to control prices. The decline in inflation in July has not been enough for it to adopt a more dovish course.
There will also be a parallel balance sheet contraction (-$95 billion this week versus -$47.5 billion previously), which will increase pressure on bonds, as noted by Bankinter (BME:BKT).
Earlier, we reported that Germany’s leading consumer confidence index hit an all-time low.
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
© Reuters. FILE PHOTO: Workers walk past an under-construction area with completed office towers in the background, in Shenzhen’s Qianhai new district, Guangdong province, China August 25, 2023. REUTERS/David Kirton/File Photo
SHANGHAI (Reuters) – China’s top planning body said on Saturday it had identified a second batch of public investment projects, including flood control and disaster relief programmes, under a bond issuance and investment plan announced in October to boost the economy.
With the latest tranche, China has now earmarked more than 800 billion yuan of its 1 trillion yuan ($140 billion) in additional government bond issuance in the fourth quarter, as it focuses on fiscal steps to shore up the flagging economy.
The National Development and Reform Commission (NDRC) said in a statement on Saturday it had identified 9,600 projects with planned investment of more than 560 billion yuan.
China’s economy, the world’s second largest, is struggling to regain its footing post-COVID-19 as policymakers grapple with tepid consumer demand, weak exports, falling foreign investment and a deepening real estate crisis.
The 1 trillion yuan in additional bond issuance will widen China’s 2023 budget deficit ratio to around 3.8 percent from 3 percent, the state-run Xinhua news agency has said.
“Construction of the projects will improve China’s flood control system, emergency response mechanism and disaster relief capabilities, and better protect people’s lives and property, so it is very significant,” the NDRC said.
The agency said it will coordinate with other government bodies to make sure that funds are allocated speedily for investment and that high standards of quality are maintained in project construction.
($1 = 7.1315 renminbi)
© Reuters. Russian Central Bank Governor Elvira Nabiullina attends a news conference in Moscow, Russia June 14, 2019. REUTERS/Shamil Zhumatov/File Photo
MOSCOW (Reuters) – Russia’s central bank will need two to three months to make sure that inflation is steadily declining before taking any decision on interest rate cuts, the bank’s governor Elvira Nabiullina told RBC media on Sunday.
The central bank raised its key interest rate by 100 basis points to 16% earlier in December, hiking for the fifth consecutive meeting in response to stubborn inflation, and suggested that its tightening cycle was nearly over.
Nabiullina said it was not yet clear when exactly the regulator would start cutting rates, however.
“We really need to make sure that inflation is steadily decreasing, that these are not one-off factors that can affect the rate of price growth in a particular month,” she said.
Nabiullina said the bank was taking into account a wide range of indicators but primarily those that “characterize the stability of inflation”.
“This will take two or three months or more – it depends on how much the wide range of indicators that characterize sustainable inflation declines,” she said.
The bank will next convene to set its benchmark rate on Feb. 16.
The governor also said the bank should have started monetary policy tightening earlier than in July, when it embarked on the rate-hiking cycle.
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