Daily Management Review

Rate Cut Reconsideration Creates Chaos In World Markets


Rate Cut Reconsideration Creates Chaos In World Markets
Wednesday saw difficulties on Asian markets as traders reduced their expectations for interest rate reduction by the Federal Reserve later in the year and the implications for central banks around the world.
Market pricing for 2024 rate cuts has dropped from approximately 160 basis points at the end of last year to just under 90 basis points at this time due to the significant shift in Fed expectations, which occurred first after a massive U.S. jobs report and then after Tuesday's upside surprise on inflation.
Globally, traders are now anticipating just one rate cut from the Reserve Bank of Australia this year as opposed to two last year.
The prognosis for longer-term increases in U.S. interest rates is also expected to restrict the extent of any easing by emerging market central banks, some of which have raised rates in an effort to protect their currencies against the strong dollar.
In reference to the Fed's anticipated rate-cuts, Vishnu Varathan, chief economist for Asia ex-Japan at Mizuho Bank, stated, "The greater the delay, the more likely that U.S. dollar assertions and yield volatility will intensify FX risks and policy conundrum for EM Asia FX,"
Investors will now be on the lookout for an upward surprise in the UK's inflation data, which is expected later on Wednesday. This would further reduce the likelihood that the Bank of England's divided policymakers will agree to reduce interest rates anytime soon.
There doesn't seem to be anything stopping Japanese equities from exceeding their 1989 peak as the Nikkei moves closer to all-time highs and the yen falls past the 150 per dollar mark.
Wednesday saw a decline in regional stocks on the Nikkei, although it was still slightly over 1,000 points below the intraday peak of 38,957.44 reached on December 29, 1989.
Meanwhile, Japanese authorities have increased their cautions against what they described as speculative and swift yen fluctuations, putting a sinking yen back on their radar.
On Wednesday, voters in other parts of Indonesia went to the polls to choose the nation's next leader.
In the largest single-day election in history, nearly 259,000 candidates are running for 20,600 positions across 17,000 islands, but all eyes are on the presidency and what will happen to incumbent Joko Widodo's ambitious programme after he oversaw the $1.3 trillion economy for ten years.
Important events that could affect markets include: - UK inflation data from January.
- GDP flash estimates for the euro zone (Q4)
- December industrial production in the Eurozone
- Heineken NV's FY 2023 Financial Report
- Andrew Bailey, Governor of the Bank of England, appears before the Lords Economic Affairs Committee