Charting the global economy: Fed holds; BOJ leaves yen at risk
June 16, 2024
Synopsis
Federal Reserve officials expect only one interest-rate cut this year, while the Bank of Japan delays details on bond buying. Far-right parties in Europe influence elections and impact the euro's value.
Federal Reserve officials penciled in just one interest-rate cut this year and forecast more reductions for 2025, reinforcing policymakers’ calls to keep borrowing costs high for longer to suppress inflation.
Meantime, the Bank of Japan is making investors wait until its July meeting for details on its paring of bond buying, leaving the yen vulnerable to further declines.
And far-right political parties dominated elections across Europe, pushing the euro down to its lowest level in a month against the dollar.
Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy, markets and geopolitics:
US
Fed policymakers signalled they now expect to cut rates only once this year, compared to the three reductions forecast in March, according to the median projection. Individual officials’ views on the best path forward for borrowing costs differed. The Fed’s “dot plot” showed four policymakers saw no cuts this year, while seven anticipated just one reduction and eight expected two cuts.
A key measure of underlying inflation stepped down for a second month in May, a pleasant surprise for Fed officials looking for signs that they can start to lower interest rates. The figures, taken with the deceleration in the core CPI in April, may represent the early stages of inflation resuming a downward trend. The release landed the morning of the Fed’s decision.
Issuance of catastrophe bonds just hit a record high, as the market braces for a rough hurricane season with the potential to do substantial damage. Sales of so-called cat bonds are 38% higher this year through May than over the same five-month period in 2023, which was already a record, according to Artemis, a compiler of data on insurance-linked securities.
Asia
The Bank of Japan’s decision Friday to stand pat on interest rates was widely expected, but traders were surprised by it just flagging a cut in debt purchases without laying out any figures or a timeline. Given that more than half of economists surveyed by Bloomberg expected the central bank to begin cutting its purchases in June, the announcement was viewed by many analysts and investors as a delay in the normalisation of policy that’s vital to the recovery of the currency.
South Korea’s labor market showed signs of cooling in May as employment growth slowed to its slowest pace in more than three years, a weak outcome that may support the case for authorities to consider adjusting policy.
Europe
The euro slid to its lowest in a month against the dollar after French President Emmanuel Macron and German Chancellor Olaf Scholz were trounced by far-right parties. The concern is that the outcome of the elections has also darkened the longer-term outlook for the world’s second-most traded currency, as it throws into question the prospects for greater integration and a united Europe.
Britain’s economic recovery ground to a halt in the run-up to the general election, a setback for Prime Minister Rishi Sunak, who has campaigned on evidence the economy is turning the corner.
Euro-zone industrial production unexpectedly fell at the start of the second quarter, casting a shadow over the economy’s pickup this year from its poor performance in 2023. The outcome leaves the euro-zone economy leaning more heavily on services to continue its recovery after a growth spurt in the first quarter.
Emerging Markets
Israel’s worst armed conflict in half a century has set off an inflationary chain reaction that’s finally coming into view. “Help, We Are Out of Air, We Are Collapsing,” blared a headline on the popular news website Walla in June — an appeal for help against inflation as the public outcry grows.
World
The German government is working to prevent the European Union’s new tariffs on Chinese electric vehicles from coming into force — or at least soften them should a full halt not be possible, according to people familiar with the matter. Brussels decided to impose additional tariffs on electric cars shipped from China as certain automakers were accused of distorting the market through state subsidies and violating WTO rules.
After the 2011 Fukushima disaster, nuclear energy was once again too scary, and uranium, the delicate and deadly fuel that powers the reactors, became a sleepy backwater in the global commodities market. But as climate change intensified and governments across the world were drawn anew to the steady carbon-free power generated by nuclear plants, interest in uranium deposits picked up — slowly at first and then, after Vladimir Putin invaded Ukraine, at a frantic pace.
Outside the Fed and BOJ, Thailand, Peru, Taiwan and Uzbekistan also held interest rates steady. Ukraine’s central bank delivered a third straight cut to borrowing costs as policymakers weigh the economic impact of Russian attacks on the nation’s energy sector. Pakistan, Serbia and Botswana also lowered rates.
[The Economic Times]
