Global demand
There are very few outliers to the global inflation and monetary adjustment phase that we are currently enduring. The variation between nations is largely limited to what phase of the adjustment they are in. The spectrum ranges from the ECB or BoE’s catch-up meeting-by-meeting hikes, to the Fed’s let’s take a break, all the way through to Canada’s we had a break, let’s do more. There are outliers, note Japan’s blinkered ‘what inflation’ approach with policy rates holding in negative territory at -0.1%. However, never having adjusted policy in the face of rising global and domestic inflation, even Japan’s inclusion doesn’t capture those nations that have come through their tightening cycle and are now pursuing monetary policy easing.
There is really only one economically significant economy that falls confidently into this category: China. China over the past few days has cut the rate on its reverse repo operations, making financing conditions easier. It had also cut several other major policy benchmarks it uses in order to influence financing conditions. The adjustment size has been underwhelming, with an average of around 10-basis points of easing within these major policy benchmarks. However, these adjustments push further an easing cycle that began at the beginning of 2022.
China is easing policy in order to boost demand in the face of underwhelming growth and wider economic statistics. Due to the threat to growth in China and the economy’s significance to global demand, we have seen reaction within global asset markets as a result of the perception of below-expected levels of monetary intervention. Many analysts have notably attributed softness in the oil market and other benchmarks of global demand to underwhelming policy adjustment in China. Should we enter a macro environment characterised by growth concerns, as appears likely, the framework for FX analysis will shift.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Related Insights
Morning Brief – The only haven
Charles Porter
Tue 26 Sep 2023
The only haven The avoidance of a hard landing according to many projections of most economically significant geographies has undoubtedly moderated perceived financial risk. Back when recessions were forecasted and priced in as the base case to follow the interest rate hiking cycle, there was greater financial risk within the system. Despite a more sanguine […]
Morning Brief – US Interest Rates
Humphrey Percy
Mon 25 Sep 2023
US Interest Rates Nothing much new over the weekend other than while sifting thought the tea leaves from last week, we found that not one but two members of the FOMC, the rate setting and policy making committee of the Federal Reserve, advocated US interest rates staying higher for longer to crush inflation. Within their […]
Morning Brief – British Pound
Humphrey Percy
Wed 27 Sep 2023
British Pound With GBP back to where it started the year pretty much, there are some stories starting to appear along the lines that while that may be the case, GBP is still up 18% from a year ago following the Truss/Kwarteng mini Budget fall out. That comparison while of course true is not a […]
