Please see below article received from Brooks Macdonald this morning, which provides a global economic and market update.
What has happened
Over the past week, the financial markets grappled with persistent inflationary pressures. Key economic indicators, such as the US Consumer Price Index (CPI) and Producer Price Index (PPI), exceeded forecasts, signalling more persistent inflation. Concurrently, oil prices experienced a significant uptick, with Brent crude reaching $85 per barrel, a high not seen since October. These developments prompted a reassessment of the Federal Reserve’s potential interest rate trajectory. Market expectations for a rate reduction by the Fed shifted, with futures markets now indicating approximately a 60% likelihood of a cut by June, a stark contrast to the nearly certain expectation of a cut two weeks prior. The prospect of fewer rate cuts led to a rise in global yields and a slight downturn in equities. The S&P 500 fell 0.13%, and the small-cap Russell 2000 index was particularly hard hit, falling by 2.08% over the week .
Important decision from the Bank of Japan tomorrow
The Bank of Japan (BoJ) is poised to terminate its negative interest rate policy (NIRP), which would represent its first rate hike since February 2007. The BoJ is reportedly considering an increase in the short-term interest rate from the current -0.1% by over 10 basis points to a range between 0% and 0.1%. This move is based on the assessment that economic conditions are now favourable for achieving a stable 2% inflation rate. In addition to ending NIRP, the BoJ is also expected to discontinue its yield curve control (YCC) policy and halt new purchases of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs), although it may maintain some level of Japanese government bond (JGB) purchases to manage yield volatility post-policy change.
What does Brooks Macdonald think
The upcoming week could be pivotal for the financial markets, as we will see multiple central bank decision. The most important one is Bank of Japan, which is likely to increase rates to 0% tomorrow, marking an end to the era of global negative interest rates. This event may overshadow the Federal Reserve meeting on Wednesday, where no interest rate adjustment is expected but it should provide insights into the Fed’s stance on inflation. Additionally, the Bank of England (BoE) is scheduled to hold its policy meeting on Thursday, rounding out a significant week for central banks worldwide.
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Chloe
18/03/2024