Archive

HEW: Policy Plumage Evolving

• After Fed expectations overshot our September call, we plucked our hawkish plumage to become neutral on the market, just in time for a dovish Fed and payrolls. We still see value in hedging downside risk with equity options.
• Despite recent upside news, the BoE seems desperate to cut, with that bias set to stay in its decision, albeit without any signal that a cut is imminent. Other highlights include the technical UK recession’s end and rate decisions in AU, SE, MY, BR, and PE.

By Philip Rush

Norway Policy Rate 4.5% (consensus 4.5%) in May-24

• The Norges Bank has maintained the policy rate at 4.5%, aligning with expectations and previous forecasts, to control inflation that is still markedly above the 2% target despite a gradual slowdown.
• Economic activity in Norway is slightly better than expected, with resilient employment but continued low growth. Rising international policy expectations and a weaker krone complicate future monetary policy decisions.
• The Committee is prepared to adjust the policy rate up or down, depending on forthcoming economic data, focusing on inflation trends and economic growth rates.

Korea CPI 2.9% y-o-y (consensus 3.0%) in Apr-24

- Korea's Consumer Price Index (CPI) slowed to 2.9% year-on-year in April 2024, slightly below market expectations of 3.0%, indicating a renewed deceleration in inflationary pressures.
- This CPI growth is the lowest since January 2024, or July 2023 before that, and falls 0.25 percentage points below the one-year average.

Lane - The analytics of the monetary policy tightening cycle

Guest lecture by Philip R. Lane, Member of the Executive Board of the ECB, at Stanford Graduate School of Business

In this speech, Philip R. Lane, a member of the Executive Board of the ECB, reviews the ECB's monetary policy tightening cycle. He highlights that the tightening began in December 2021 and constituted a major surprise compared to expectations. The tightening cycle aimed to unwind an accommodative monetary stance and contain the inflation shock resulting from the large increase in inflation after the unjustified Russian invasion of Ukraine. Throughout the cycle, the transmission of monetary policy to financial markets and the banking sector has been relatively smooth. Market interest rates, money market rates, and lending rates have all responded to the tightening measures. The exchange rate response has been muted, and sovereign bond markets have coped well with the increase in interest rates. The flow of credit to firms has declined, but there are signs of stabilization, while lending conditions to households have shown tentative stabilization. Institutional factors, such as banking supervision and macroprudential policies, have played a significant role in shaping the risk-taking behavior of banks.


Positivity score: 75
Uncertainty score: 60