Market recap: Week of 25-29 Sep 2023

Bank of Japan

Reuters: The Bank of Japan maintained ultra-low interest rates at -0.1%. Their commitment to supporting the economy until inflation consistently reaches the 2% target suggests a deliberate approach to phasing out the extensive stimulus program.

Governor Kazuo Ueda highlighted the importance of a careful evaluation of data, with a specific focus on wages and service prices, before considering any adjustments to interest rates.

In a related context, just a week ago, US Treasury Secretary Janet Yellen acknowledged the rationale behind yen intervention in response to volatility. Furthermore, Japan's Finance Minister Shunichi Suzuki expressed a willingness to explore various options in the currency arena. This comes as the dollar surpassed 148 yen, with a warning against actions that could negatively impact trade-dependent Japan.

Oil demand

BNN Bloomberg: The Canadian crude exports from US Gulf terminals in October. Production cuts from Saudi Arabia and Russia are fueling increased demand overseas, and with US refinery maintenance in progress, more of this oil is becoming available for shipment.

Anticipated shipments are set to reach a remarkable 11 million barrels next month, marking the second-highest volume on record.

Government shutdown

Reuters: The potential for a government shutdown underscores the impact of political polarisation in Washington, hampering fiscal policymaking. This comes at a time when rising interest rates are exerting pressure on the affordability of U.S. government debt, as noted by Moody's analyst William Foster in a conversation with Reuters.

Congress has encountered challenges in passing spending bills to fund federal agency programs for the upcoming fiscal year starting on Oct. 1 amid an internal feud within the Republican Party.

In another development, Deutsche Bank's analysis, dating back to the 1700s, has identified four criteria signalling an impending recession, with the U.S. economy now triggering the final warning sign.

UK growth

The Guardian: According to a study by the Chartered Institute of Personnel & Development (CIPD), average sickness absence in the past year increased to 7.8 days, up from 5.8 days in 2019, among 918 organizations representing 6.5 million employees.

The Organization for Economic Cooperation and Development (OECD) data reveals that among its 38 member countries, the UK stands out with a lower employment rate, higher unemployment rate, and increased economic inactivity compared to early 2020. KPMG's economic forecast for the UK anticipates a slowdown, with growth projected at just 0.4% this year, down from 4.1% in 2022 and further deceleration to 0.3% in 2024.

Gold slides

CNBC: Gold prices slid for a second straight day, driven by rising Treasury yields and a stronger dollar amid expectations of prolonged higher interest rates by the Federal Reserve.

SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, reported its lowest holdings since January 2020.

China's central bank lifted temporary gold import restrictions imposed on select lenders, previously aimed at stabilizing the renminbi. 

During these restrictions, the Shanghai gold price vs. London reached an all-time high of $121 per troy ounce, but it has since receded.

Australia inflation

The Guardian: Australia's inflation shows acceleration in August, primarily driven by surging fuel prices and increasing rents. The consumer price index for the month rose to an annual rate of 5.2%, up from 4.9%.

Next week, the RBA board will convene for its first rates decision under the leadership of new governor Michelle Bullock.

European economic policy

Reuters: The European Central Bank (ECB) urges governments to reconsider energy price subsidies introduced during the Ukraine conflict, citing the potential to stabilize inflation over time. Monitoring over 500 fiscal measures, the ECB notes most countries are complying with the July agreement to end subsidies. ECB forecasts GDP growth at 0.7% for 2023 and 1.0% for 2024.

UK housing

The Guardian: In a recent survey by KPMG, over 1,000 UK mortgage holders were asked about coping with higher monthly payments.

• 18% dipped into savings to reduce debt, 25% considering it
• 12% extended mortgage terms, 25% were considering
• 8% downsized homes, 22% contemplating a move

Linda Ellett, KPMG's UK head of consumer markets, notes the impact on household budgets and spending. 

Interest rate cuts and easing policy by Bank of Japan

Bloomberg: Goldman Sachs in the U.S. adjusts rate cut expectations from April-June 2024 to October-December amidst rising long-term interest rates. Investors brace for prolonged high rates.

Meanwhile, Bank of Japan maintains current easing policy, extending the expected timeline for policy revision. Japanese PM Kishida emphasizes vigilance on exchange rate trends and possible responses to excessive fluctuations.

Speculators hold a significant short yen position, raising the potential for government intervention and yen appreciation.