Many More Central Banks Announce Interest Rate Decisions, Third-Quarter U.S. GDP Gets Revised Higher, And A Possible U.S. Government Shutdown Looms
December 19, 2024
World financial markets reacted sharply and immediately to yesterday’s shift in Fed forward rate guidance that now suggests only two rate cuts, not four, during 2025. Then in overnight market action,
- U.S. stock futures recovered about 0.7%.
- Share prices in the Pacific Rim 1.0% or more in South Korea, Indonesia, Taiwan, New Zealand, and India and by 0.7% in Japan and 0.6% in Hong Kong. Equities are down at least 1.0% in the U.K., Germany, France, Italy and Spain as well.
- Ten-year sovereign debt yields climbed six basis points further in France, Italy and Spain, five bps in Germany and three bps in the U.S. and Great Britain but held steady in Japan where the Bank of Japan again deferred raising interest rates.
- The DXY weighted dollar index climbed to a fresh 2-year high late yesterday. While steady so far today, such is up 7.8% since late September.
- Against individual currencies so far today, the major dollar move has been a 1.5% upsurge against the Japanese yen. That has been balanced by losses of 0.5% versus the Canadian dollar and 0.4% relative to the euro and Swiss franc.
- Bitcoin fell in price Wednesday but has rebounded 2.1% today and is back above the $100,000 threshold.
- The price of gold is down 1.6%, while that of WTI oil is 0.7% firmer.
Under direction from President-Elect Trump and his “disrupter-in-chief” guru Elon Musk, House Speaker Johnson scuttled a pending deal on a continuing resolution to keep funding the federal government. A possible shutdown looms Friday night.
Estimated quarterly U.S. GDP growth in the summer quarter according to the last revision has been revised back up 0.3 percentage points to 3.1% at an annualized rate. Stronger advances were reported in personal consumption, business non-residential investment, and government spending. Residential investment and net exports exerted less restraint on growth than estimated in the prior report, while the drag from inventories was revised marginally higher. Four of the past five reported quarters experienced growth of at least 3.0%. The total and core PCE price deflators went up 2.3% and 2.7% between the third quarters of 2023 and 2024.
Two other U.S. data reports out today showed a larger-than-forecast 18k drop last week in new jobless insurance claims but a bigger-than-projected deterioration of the Philly Fed manufacturing index to a 20-month low of -16.4 this month from -5.5 in November.
In the wake of the Fed’s interest rate cut of 25 basis points announced yesterday afternoon, central banks that peg their exchange rates quickly followed suit. Rate cuts of 25 basis points were made, for instance, in Hong Kong, Macao, Saudi Arabia, Bahran and the United Arab Emirates, and of 30 basis points in Qatar.
By an 8-1 vote, the Bank of Japan retained a short-term interest rate target of around 0.25%, its level since hikes of 20 bps last March and then 15 bps in July. Board member Tamura wanted to hike the rate by 25 bps in light of some signs that expected inflation has risen. In contrast to that sole dissenting vote , the board majority cited the prevalence of considerable uncertainty and elected to keep watch on the performance of wage awards and the yen before acting.
The Bank of England’s Bank rate likewise was left unchanged at 4.75%, but their the alternative choice was to cut the rate by a further 25 bps. Three of the nine members of the Monetary Policy Committee — Dhingra, Ramsden, and Taylor — favorted that option out of concern that “a continued stance that was very restrictive risked deviating unsustainably from the 2% inflation target and opening an unduly large output gap.” Two rate cuts of 25 basis points each had been made in August and November, and the six-person majority chose to pause easing in spite of a recent weakening of economic growth because of a concurrent rebound of inflation and wage pressure. CPI inflation of 2.6% last month was up from September’s 1.7% 41-month low, and on-year average wage growth in August-October of 5.2% was up from 3.9% in June-August.
Officials at the Central Bank of the Republic of China (Taiwan) kept their Discount Rate unchanged at 2.0%, its level since a 12.5 basis point hike last March. That move 87.5 basis points of tightening that began with a 25-bp move in March 2022. Taiwanese inflation is currently tame, but a statement released after today policy review warns of external sources of uncertainty such as ” new developments in the US economic and trade policy changes, the pace of monetary policy adjustment by major central banks, China’s economic downturn risk, geopolitical conflicts, and extreme weather” in justifying caution.
As analysts were expecting, a 25-basis point interest rate cut was announced today at the Central Bank of the Philippines. At 5.75%, the new rate will be its lowest in 22 months and down from 6.50% maintained from October 2023 until an initial cut in August 2024. Inflation is projected to stay under the 2-4% target range corridor ceiling over the coming two years. While shifting toward a less restrictive monetary stance, officials feel that “emerging upside risks to inflation, notably geopolitical factors” warrant a careful approach.
Once again, officials at the Bank of Norway held fire and kept their policy rate at the 16-year peak of 4.50% first reached a year ago in December 2023. Whereas officials at the Federal Reserve have been downplaying the role of President-Elect Trump’s policy plans on its decisions so far, other monetary authorities around the world have been much less restrained in that respect, including those in Norway. At the same time with a nod to ongoing disinflation that at 2.4% represents a 47-month CPI low, today’s policy statement includes looser forward guidance:
The Committee projects a gradual reduction in the policy rate in the years ahead. The policy rate forecast presented today is consistent with a reduction in the policy rate to 4.25 percent in March, with a further decline to 3.75 percent by the end of 2025.
The Swedish Riksbank has been administering a cycle of interest rate reduction since May 2024, which including today’s 25-basis point cut to 2.50% brings the cumulative relief to 150 basis points. Swedish CPI inflation has been under the 2.0% target for four straight months including 1.6% in November, which represents a 40-month low and drop overall from 12.3% at the end of 2022. While Norway is only now approaching its first interest rate cut, the Swedish central bank executive board is starting to contemplate an end to the cycle:
There is particular uncertainty regarding developments abroad, for instance with regard to the geopolitical tensions, lack of clarity regarding trade policy and the governmental crises arising in Europe. There are also risks linked to the recovery in the Swedish economy and the krona exchange rate. In light of the effect of earlier cuts and shifts in the risk profile regarding the outlook for inflation and economic activity, f the outlook remains unchanged, the policy rate may be cut once again during the first half of 2025.
The Czech National Bank also reviewed its policy today and in the end chose to leave the 2-week repo rate unchanged at 4.0%. This decision represents a pause following a string of cuts totaling 300 basis points over the past year. Inflation in the Czech Republic has dropped from 18% in September 2022 to 2.8%, but there’s still a way to go before the 2.0% target has been achieved, Like other central banks, Czech officials are taking into account developments in the United States and elsewhere that justify caution when easing policy.
Other data highlights this Thursday include
- Darkening business confidence in France, which dropped further below the 100 neutral level to a 5-month low of 94.3 in December versus 97.8 in September, 103.2 in February 2023, and 114.1 in November 2021.
- New Zealand is in recession. GDP dropped 1.0% last quarter, more than twice the expected pace and following a slide of 1.1% in 2Q 2024. A 1.5% year-on-year decline of GDP is the most in 17 quarters.
- Belgian consumer confidence dropped to an 18-month low, while 2-month highs in consumer sentiment were reported in Spain and Germany.
- Euroland experienced its smallest seasonally adjusted current account surplus during October (EUR 25.8 billion) since October of 2023.
- Icelandic consumer price inflation of 4.8% in December matched November’s three-year low.
- Polish producer prices recorded their smallest on-year drop (-3.7%) since September of 2023 during November.
- Switzerland’s CHF 43.3 billion trade surplus over the first 11 months of this year was 28% wider than a year earlier.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of England, Bank of Japan, Bank of Norway, Central Bank of The Philippines, Central Bank of the Republic of China (Taiwan), Czech National Bank, French business confidence, Swedish Riksbank, U.S. GDP growth
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