Investors Chronicle & Bloomberg: Japan’s 20-year bond auction outcome signals weak domestic demand from banks and insurers. The Bank of Japan, unlike other central banks, is concerned about undershooting its 2% inflation target, with inflation currently around 3%.
This may pose concerns about Japan’s high public debt and impact insurance firms and pension funds. As a result, the BoJ might consider widening its tolerance band if yields approach the ceiling again. Analysts at Societe Generale suggest the ceiling could rise to 1.5% in January 2024.
European Central Bank
BNP Paribas: The rate hike cycle may be nearing its end. Weakening economic activity and lower expected inflation by year-end could lead the Fed, like the European Central Bank and Bank of England, to pause rate increases.
However, further tightening remains a possibility. Instead of immediate cuts, policy rates are expected to remain at elevated levels until mid-2024 to combat inflation. BNP Paribas forecasts no policy rate changes for the Fed, ECB, and BoE before mid-2024, possibly marking the onset of rate cuts. In contrast, the Bank of Japan is set to initiate monetary tightening in April 2024.
Hedge funds and commodities
Kitco: Hedge funds are witnessing a significant shift in the gold market, as per the CFTC’s latest report for the week ending Oct. 17.
Money managers increased their speculative long positions in Comex gold futures by 10,774 contracts, reaching 104,708, while short positions decreased by 31,096 contracts, down to 89,605.
After two weeks of being net short, speculative positions have turned bullish, with a net long position of 15,103 contracts. Société Générale’s analysts noted this as the second-largest short-covering move in the gold market since 2006.
CNBC and Fortune: Bill Ackman, founder of Pershing Square, announced his decision to cover his bet against long-term Treasurys. He cited increasing geopolitical risks as a reason for this move.
He is concerned that the world’s current risk levels make maintaining short positions in long-term bonds at prevailing rates unwise. Federal Reserve Chair Jerome Powell hinted that rising long-term Treasury yields might allow the central bank to pause its string of interest-rate hikes.
However, Wall Street experts caution that quantitative tightening (QT) is complex and hard to predict, with potential risks to the economy.
Sweden Postsen: ECB’s interest rate announcement will be on this Thursday. According to a Bloomberg report, Europe Central Bank President Christine Lagarde had a telephone conference with the European Commission, EU Presidency, and the Eurogroup.
She anticipates stagnation in the coming quarters, with the potential for it to worsen. Lagarde notes resilient employment but also signs of a slowdown.
The Guardian: Bank of England expected to keep interest rates at 5.25% for the second time as the UK job market shows signs of slowing.
Recent figures reveal a rise in the unemployment rate to 4.2%, up from 4% in the previous quarter. Manufacturers report declining sentiment, falling output, and increased caution in a CBI survey.
Analysts anticipate the Bank’s Monetary Policy Committee to maintain rates, considering the job market’s weakness. #BankOfEngland #InterestRates #UKEconomy
Forbes: Growing insurance costs and expiring subsidies pose challenges for the European electric car market. UK media reports soaring premiums; one Tesla Model Y owner faced a shocking £5,000 ($6,000) annual insurance bill, up from £1,000 ($1,200) the previous year.
In the US, EV sales have slowed, taking twice as long to sell in August 2023 compared to January. Despite Tesla’s price reductions, EV prices are down 22% YoY. Insurance for new energy vehicles is often 20% higher than traditional cars due to higher loss ratios.
Bank of Canada: Bank of Canada has decided to keep its policy rate steady at 5% and continues its strategy of quantitative tightening. The bank forecasts global GDP growth of 2.9% this year and 2.3% in 2024. Business investment is facing challenges due to weaker demand and increased borrowing costs. Meanwhile, Canada’s growing population is impacting labour markets and housing demand.
Reuters: Japan Finance Minister Shunichi Suzuki reaffirms Japan’s commitment to address currency market fluctuations swiftly. With the yen weakening past 150 against the U.S. dollar, Suzuki emphasizes the need for stable currency movements based on fundamentals while discouraging excessive volatility.
Japanese law grants the government control over currency policy, with the Ministry of Finance making intervention decisions.
European rate hikes
The Guardian: The ECB has held its key policy rates steady, a departure from 10 previous rate hikes aimed at combating rising living costs.
Despite inflation exceeding the 2% target, concerns mount over the potential impact of rate hikes on European economies, particularly in Germany, where manufacturing struggles led to a fourth consecutive month of business activity contraction in October.
Christine Lagarde, ECB President, anticipates ongoing economic weakness. Eurozone inflation fell to 4.3% in September, down from 5.2% in August, compared to 9.9% a year ago.
The information contained in this blog is for educational purposes only and is not intended as financial or investment advice. It is considered accurate at the date of publication by the sources. Changes in circumstances after the time of publication may impact the accuracy of the information.
Past performance is not indicative of future results. Doing your own research before making any trading decisions is recommended.