Argentina Elections

Tuesday evening will see the publication of the FOMC’s Minutes from their meeting on 2 November. At this meeting, the Fed met market expectations in maintaining their benchmark policy target rate of 5.25-5.5% – its highest level in 22 years. This also marked the second consecutive hold as policy makers considered how the full effect of the Central Bank’s monetary tightening was yet to be fully felt. Nevertheless, during the subsequent press conference, Powell said that though the Federal Reserve were “committed to achieving a stance […] that is sufficiently restrictive, […] we’re not confident yet that we have achieved such a stance”, indicative of how the Fed were leaving the possibility of further hikes on the table. Since then, however, last week’s softer-than-expected inflation print resulted in money markets downwardly revising rate expectations further. Indeed, according to implied rate expectations, markets are not pricing in a hike at either of the next two policy meetings.

Such a stance was also aided by Powell’s comments which suggested that the Fed were not in any hurry to raise rates. Nevertheless, the topic of monetary loosening next year remains subject to considerable debate fuelling volatility. This debate highlights the disparity between the market’s view (which signals around three rate cuts over 2024) and Powell’s view that the FOMC are not even thinking about future cuts. Presently there is a lack of conviction over the future monetary policy of the Fed, with some tier one banks predicting rates to be at 5.25% by the end of 2024, while others are forecasting rates to be as low as 2.75%. Hence, markets will be analysing the release of the Fed minutes at 1900 tomorrow to try to gain some further insight into the future course of the central bank.

This morning, the PBoC met market expectations in keeping their benchmark policy rate unchanged. Here, the one-year loan prime rate (LPR) was kept at 3.45%, its record low, while the five-year rate (which is used as a benchmark for many Chinese mortgages) was also kept at 4.2%. The decision comes as a weakening yuan limits the scope of the central bank cutting rates further, despite the desire to stimulate the economy through looser monetary policy. Since their last policy meeting, Chinese data has continued to be mixed with their latest annualised CPI print giving a deflationary reading of 0.2%, (against expectations of a 0.1% fall in the index) following weakened consumer demand. Nevertheless, retail sales were some causes for cautious optimism having increased 70bps over October. These data points come against a backdrop of continued fragility in the Chinese property sector. Indeed, some are estimating that there are 20m uncompleted homes across China and with a cost close to $500bn to complete them, Beijing may have to fund the gap