U.S. inflation expectations fell to their lowest level in more than two years in September as consumers became more optimistic about the economic outlook. Preliminary data from the University of Michigan showed that consumers expect inflation over the next year to be 3.1%, down from the 3.5% expected in August. %, which is the lowest value since early 2021. Respondents believed that the inflation rate in the next five to ten years would be 2.7%, the lowest since the end of 2020. Even so, the consumer confidence index fell to 67.7, lower than market expectations.
Strikes at three major U.S. automakers enter their third day. United Auto Workers President Sean Fein said he was unmoved by Stratis’ proposal for a 21% wage increase.
The U.S. government shutdown is approaching, and nearly ten important economic reports in October may have to be postponed, including non-agricultural data.
There are still divisions within the ECB. Gov. Muller: No further interest rate increases are expected in the coming months. However, if inflation rises again, further interest rate increases may still be needed. Vice President Guindos: CPI and core CPI index will continue to decline, and maintaining the current interest rate at this level for a period of time is sufficient to control inflation. Governing Council member Holzmann warned that he sees the risk that the European Central Bank may need to raise interest rates again, and that inflation risks have not weakened recently.
Last week, the British pound followed the euro’s decline against the backdrop of a stronger U.S. dollar. The British pound tested the support level of 1.2400. The dovish tendency of the European Central Bank may intensify the repricing of dovish expectations for the Bank of England’s interest rates. The current market pricing terminal rate is only 34 basis points higher than it is now, a correction of almost 40 basis points over the past month. After the European Central Bank’s dovish interest rate hike, the European pound fell back below the 0.8600 level. The Bank of England may continue to be under some moderate pressure, but it seems difficult to find much direction in the short term. Ahead of the Bank of England’s rate decision this week, investors will still be watching UK CPI data, which could influence market pricing.
The Fed is expected to keep interest rates on hold despite a surprise rise in core CPI as services inflation accelerates, especially air ticket prices. Overall, underlying inflationary pressures at the start of the third quarter remained slightly higher than expected. In this case, markets will be closely watching how Fed officials assess the need for future rate hikes. The June dot plot showed that 12 of the 18 members expected another rate hike during the year. However, we expect that this last rate hike will be difficult to achieve, and the ensuing tightening of financial conditions limits the need for further interest rate increases. Bank of England: The Bank of England is expected to raise interest rates by 25 basis points to 5.5%, but the UK before the interest rate decision CP data may influence the tone of the Bank of England. Bank of Japan: The Bank of Japan is not expected to change monetary policy, but adjustments to the YCC are likely to be made later this year. Swiss National Bank: It is expected to raise interest rates by 25 basis points, which will be the last rate increase in this interest rate hike cycle. Norges Bank: It is expected to raise interest rates by 25 basis points. This will be the last interest rate increase in this round of interest rate hikes. The Riksbank: It is expected to raise interest rates for the last time in this cycle because core inflation is still too high and they want to ensure that the risk of inflation is not rekindled by premature easing of monetary policy. In addition, the weakness of the Swedish krona will increase inflation on imported products. Therefore, the Riksbank cannot deviate too much from the ECB’s policy. Fortunately, the ECB’s dovish interest rate hike this time weakened the strength of the euro against the Swedish krona. Likewise we expect Riksbank interest rates to remain high for some time, with most likely no rate cuts until the second quarter of next year. Starting in April 2024, interest rates are expected to be cut by 25 basis points at each meeting, taking the policy rate to 3.0% by the end of the year.
European trader MONEX
The ECB’s interest rate decision last week was in line with our forecasts. While raising the deposit mechanism interest rate to a record high of 4%, the European Central Bank also issued a series of forecasts that are obviously more stagflationary: the growth rate forecast for the entire forecast cycle has been lowered, and overall inflation in the next two years has been raised. The above statement states that “interest rates have reached restrictive levels, and maintaining this interest rate level for a long enough time will significantly push inflation back to the target level.” It seems that this interest rate increase is an “insurance policy” to prevent inflation from continuing in the medium term ( Insurance policy)””, which also hinted at the end of this round of interest rate hike cycles. In the future, it will prefer to maintain high interest rates for a longer period of time to cope with inflationary pressure. The short-term rise caused by interest rate hikes was hit by the reality of economic expectations, and the euro fell to the low of the recent range, which is in line with our bearish scenario. The ECB’s economic forecast for the rest of the year puts the possibility of recession within the margin of error. And the ECB has failed to convince the market that it can To raise interest rates again, some hawkish members are trying to correct this result. Now the European Central Bank is basically out of consideration, and the possibility of the Federal Reserve raising interest rates in the fourth quarter still has a great impact on the market. It is expected that the euro against the dollar will continue to be affected by the U.S. Regarding the impact of development (data), we also noticed that the European PMI data to be released this week may cause Europe and the United States to fall further to the 1.05 range.
Both the Federal Reserve and the Bank of Japan will hold interest rate meetings this week, and market expectations for the Bank of Japan to adjust its policies are low. It is expected that the dollar against the yen may approach the 150 level after the Fed’s decision is announced. A break above the upper edge of the recent consolidation range of 147.80-14810, which is also where the extension of the June and August highs is located, will be critical to confirm whether the uptrend continues. On the other hand, if USD/JPY fails to hold the recent pivot low of 145.90, there may be a risk of a short-term pullback towards the 50-day moving average around 14450-14390.