UK turns a corner but risks remain large
The Bank of England raised the Bank Rate by 50 basis points to 4.00% in a split 7-2 vote as a tight labour market and continued domestic wage and price pressures justified a tenth consecutive increase.
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The Bank of England raised the Bank Rate by 50 basis points to 4.00% in a split 7-2 vote as a tight labour market and continued domestic wage and price pressures justified a tenth consecutive increase.
The European Central Bank raised its key interest rates by 50 basis points, in line with expectations to a 15-year high of 3.00%. In the accompanying statement and subsequent press conference, the ECB maintained its hawkish tone, signalled an intention to increase rates by a further 50 bps in March.
To prevent the United States from defaulting on its payment obligations, the Treasury will now be forced to utilize its cash balances and take steps towards “extraordinary measures.”
At its 14 December monetary policy meeting, the Bank of England voted to raise the Bank Rate by 50bps to 3.50%, bringing borrowing costs to their highest level since 2008.
At its last monetary policy meeting of 2022, the ECB increased all key interest rates by 50 bps, bringing the refinancing rate to 2.50%, the marginal lending facility to 2.75% and the deposit facility rate to 2.00%. This rate hike was a step down from the 75-bps increases of the previous two meetings.
The FOMC unanimously decided to downshift to a smaller but, in the words of Fed Chairman Jerome Powell, “still historically large increase” of 50 bps.
At their final monetary policy meeting of 2022, the Reserve Bank of Australia raised its Overnight Cash Rate by 25bps to a decade high of 3.10%.
On Friday 25 November, the People’s Bank of China announced a 25bps Reserve Requirement Ratio cut. In the accompanying statement, the PBoC confirmed the RRR cut was part of a package of measures to support economic growth.
After a series of jumbo rate hikes, it appears most investors are anticipating a pivot from the US Federal Reserve. However, the elevated level of inflation and resilience of the economy mean that rate cuts are unlikely for some time.
At its 3 November monetary policy meeting, the BoE finally joined the 75bps rate hike club, increasing the base rate to 3.00%, the highest level in almost 14 years. Over the past 11 months, the central bank has pushed the base rate up by 290bps – the fastest pace on record – driven by a combination of elevated inflation, a tight employment market and the potential for this to lead to more persistent inflation, and the recent fiscal support for household energy bills.
The FOMC showed once again that it is prepared to take interest rates into sufficiently restrictive territory in order to clamp down on inflation. For the fourth consecutive meeting, it unanimously decided to increase its Federal Funds target rate by 75bps to a range of 3.75%-4.00%. Interest on reserve balances (IORB) and the overnight RRP were also increased by equivalent amounts to 3.80% and 3.90%, respectively.
At its 27 October policy meeting, the ECB’s Governing Council voted to raise key eurozone interest rates by 75bps, in-line with market expectations. The deposit rate increased to 1.50%, the marginal lending facility to 2.25% and the main refinancing rate to 2.00%. The central bank’s rationale for a third large rate hike was the recognition that inflation remains “far too high”.
At its monetary policy meeting on 1 November, the RBA raised the Overnight Cash Rate by 25bps to 2.85%. This was the seventh hike in the current cycle, taking base rates to a nine-year high.
At its semi-annual monetary policy meeting on 14 October, the MAS re-centered the mid-point of the S$NEER up to its prevailing level – approximately a 2% increase – while keeping the slope and width of the policy band unchanged.
The Bank of England raised the Bank Rate by 50 basis points to 2.25% in a split 5-3-1 vote as the tight labour market, higher wages and higher domestic inflation justified a seventh consecutive hike.
The Federal Open Market Committee unanimously decided to increase its federal funds target rate by 75bps for the third consecutive meeting, as Fed officials remain focused on dampening inflation.
The latest European Central Bank (ECB) rate hike, described in the press release as a “major step”, was not a complete surprise given several of the more hawkish ECB members had commented ahead of the meeting that 75 basis points (bps) should be “on the table”. The increase moves the deposit facility rate to 0.75%, the refinancing rate to 1.25%, and the marginal lending facility to 1.50%.
On August 15, the People’s Bank of China announced a MLF rate cut of 10bps to 2.75%. Although small in size, the rate cut confirms the PBOC’s desire to jump-start the economy and sends an important monetary policy signal with significant implications for interest rates and RMB cash investors.
In a near-consensus 8-1 vote, the Bank of England (BoE) Monetary Policy Committee (MPC) raised the Bank Rate by 50 basis points (bps) to 1.75%, the highest level in over 13 years as domestic cost and price pressures intensify.
At its monetary policy meeting on August 2, the Reserve Bank of Australia (RBA), in-line with expectations, hiked the base rate by 50bps to 1.85%, taking total rate hikes to 175bps over the past 4-months.
On July 27, the Federal Open Market Committee (FOMC) raised its Federal Funds Rate target range by 75 basis points (bps) to 2.25% - 2.50%. There were no dissenters.
At its 21 July board meeting, the European Central bank (ECB) raised all its key interest rates by 50 basis points (bps), considerably larger than the 25bps guidance it gave in June. This moves the deposit rate out negative territory for the first time since 2014.
On July 14, the MAS announced it would tighten monetary policy by re-centering the S$NEER policy band upwards. While the timing of the MAS statement was a surprise, the market was expecting further policy actions.
Markets were expecting a 25bp rate increase from the BoE at its June meeting and that’s what was delivered, as the Monetary Policy Committee voted to raise the Bank Rate to 1.25%. The BoE was the first major developed central bank to start hiking rates in late 2021, and the latest move affirms its commitment to a slow and steady progression towards normalised interest rates, even as an increasing number of central banks pivot to larger rate increases.
The Federal Open Market Committee matched market expectations for a 75bp increase to its target range, which now sits at 1.50%-1.75%. It also raised the Interest on Reserve Balances and the overnight Reverse Repo Rate by an equivalent amount to 1.65% and 1.55%, respectively.
On June 7, the RBA surprised the market by raising the Overnight Cash Rate by 50bps to 0.85%. This is the second rate hike in the current cycle, following a 25bps move in early May. The size of the rate hike also affirms the RBA’s desire to get ahead of the inflation fighting curve.
The FOMC met market expectations for a 50bps increase to its target range, which now stands between 0.75% and 1.00%, and raised the Interest on Reserve Balances (IORB) and the overnight Reverse Repo Rate (RRP) by the same amount to 0.90% and 0.80% respectively.
The BoE delivered on market expectations, increasing the Bank Rate by 25 bps at its May MPC meeting and bringing rates to 1% for the first time since the Global Financial Crisis, in what Governor Andrew Bailey described as a ‘carefully calibrated decision’.
The RBA hiked its Overnight Cash Rate for the first time in over a decade at its 3rd May monetary policy meeting. The hike was more hawkish than expected.
The latest muted actions by the PBoC suggest the central bank is reaching the limits of monetary policy, which are expected to have direct implications for onshore interest rates.
At its monetary policy meeting on Tuesday 5th of April, the RBA left base rates unchanged at a record low of 0.1% whilst acknowledged that “inflation has picked up and a further increase is expected” in the accompanying comments. Its hawkish tilt and giving a clear hint to potential rate rises in the coming months.
On 15-16 March, the Federal Open Market Committee (FOMC) held its two-day meeting and raised its federal funds rate target range by 25 basis points (bps) to 0.25%-0.5%, with one dissenting member calling for a 50bps increase.
The Bank of England (BoE) raised the Bank Rate by 25 basis points (bps) to 0.75% in a split 8-1 vote with the dissenting Monetary Policy Committee (MPC) member calling for no change on 17 March 2022.
At their first monetary policy meeting of 2022, the RBA acknowledged that the economy “remains resilient” despite the recent Omicron outbreak which has not derailed the recovery.
The European Central Bank (ECB) took a hawkish turn at the February meeting, putting the market on alert for potential rates hikes later this year. While this was not a meeting where the ECB unveiled a new set of forecasts, it nonetheless provided a number of talking points.
Singapore’s de-facto central bank hiked the slope of the S$NEER policy band, increasing the pace of appreciation. The unexpected hike was triggered by the strong inflation uptrend in recent days as well as a reassessment of Singapore’s growth and inflation expectations in 2022 by the MAS.
The Bank of England (BoE) defied market expectations for a rate hike as they left the Bank Rate unchanged at 0.1% and maintained total target of asset purchases at GBP 895 billion. The deferred hike means no immediate respite to ultra-low sterling yields, although further interest rate volatility is likely; investors should consider maintaining a disciplined approach to cash investment and segmentation.
The RBA announced its first tentative step towards tapering and eventual policy normalization.
The Federal debt and how the Visigoths may try to break the system if no one fixes it.
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A preliminary read on midterm election results given the context of prevailing market and economic conditions.
My list of things I am thankful for this year: CH4, HR4346 and mRNA-1273. Of course, your mileage may vary.
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Three topics this week: the repricing of risky credit, labor markets and a COVID recap. While equities are pricing in a much greater probability of recession now, the credit markets are just getting started. One canary in the coal mine: the Citrix financing, which will be followed by a string of even weaker credits. On labor markets, the Fed is facing the tightest labor supply conditions in decades. Can second chance policies easing the path to employment for people with criminal arrest records help increase the labor supply, or will the Fed have to crush the economy to restore desired levels of wage and price inflation? Lastly, an update on bivalent vaccines and inhalable vaccines, as the latter offers the best chance of actually reducing infection and transmission.
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The Elephants in the Room. We start with a global summary of the energy landscape, including the energy crisis in Europe. We continue with a detailed assessment of the hydrogen economy, whose liftoff is still many years away.
JP Morgan CEO Jamie Dimon stated last week that he expects a “hurricane” resulting from the end of the largest fiscal and monetary experiment in history, and from the ongoing impact of Russia’s invasion of Ukraine on food and energy prices.
The slowdown induced by central bank tightening is just starting. You can be patient when adding risk to portfolios; earnings will eventually decline and markets are not pricing in high risk of recession.
A combination of rising rates, the Russian invasion of Ukraine and years of investor acceptance of unprofitable new companies (the “YUCs”) led to a sharp repricing of growth stocks in Q1 of this year.
Surveying the Damage: Russia’s recurring war on Ukraine, equity market declines and the opportunity for bottom-fishing investors, the energy price surge/recession outlook in Europe, the impact of rising metals prices on EV battery costs, and the COVID situation in Hong Kong
In this note we examine the latest on China’s economy and markets. But first: comments on China’s connection to the war in Ukraine since its financial and energy decisions may dilute the effectiveness of sanctions on Russia:
The brief note covers the price Europe is now paying for allowing its energy reliance on Russia to reach extreme levels, and the implications for the durability of sanctions placed on Russia if Russia retaliates with energy sanctions on Europe.
Global markets have had to digest a lot of bad news in a very short period.
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Greetings students. We look forward to seeing you back on campus. Your Fall 2021 syllabus is attached. Syllabus update: Biology BI66 “The Origins of COVID” has been cancelled until further notice.
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The election as referendum on America: how well does the “system” work, and for whom?
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Lockdown relaxation and economic reawakening…are we there yet?
In this week's note, we take a close look at country and regional virus data, and examine the pitfalls of over-extrapolating trends that often reverse.
After the equity rally, P/E multiples are back at around 16x 2021 consensus earnings.
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There are things the government can try and fix during a pandemic and other things which it can't.
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Confounding almost every forecast we saw last week, Senator Biden appears to have emerged from Super Tuesday with a sizeable delegate lead. Why might the night have turned out so differently from what was expected just a few days ago?
A Coronavirus update: severity, consequences and implications for investors.
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The US-China trade war, prescription drug price legislation and the 2020 election.
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The European Central Bank (ECB) made no changes to its key interest rates, asset purchases and forward guidance and is unlikely to make any changes in the coming months.