Fed hikes, BoJ must follow

00:00:00: It's a hike, ladies and gentlemen.

00:00:01: And probably more coming from the Fed market reacts with limited enthusiasm of course but we see a healthy reaction.

00:00:08: still attention now ships to the Bank of England and Bank Of Japan too what they will do?

00:00:13: What They Will Say They Will Do In The Coming Months & Quarters.

00:00:17: So welcome to Swiss Codes.

00:00:19: Daily Market Talk is September episode but before we do and as always keep in mind that opinions are my own, this is not financial advice.

00:00:42: So

00:00:44: the Fed delivered a twenty-five basis point hike yesterday, pointing at above target inflation in the US.

00:00:51: The decision was wildly expected by analysts and wildly priced in Biden markets.

00:00:56: And the dotplot that Kevin Walsh refused to add his dot onto hinted there could be one more rate hike before this year ends in the U.S.. And the road expectation is we can see three more rates hikes from the fed next year.

00:01:12: Furious to see his new guy hike interest rates a few months into the job, lower their interest rate for the United States of America and fast cried US President Donald Trump after the decision yesterday.

00:01:25: I don't know if this is scripted theory or real but with that, The Federal Reserve has probably began a rate tightening cycle!

00:01:33: So he saw a hawkish reaction from the markets – the U.S.

00:01:37: two-year yield spiked at four point seventy-four percent level while yield hovered around the five percent psychological mark.

00:01:45: but overall, The reaction from longer and off-the-yield curve was more contained.

00:01:51: And tell Trump that's exactly what the Fed wanted!

00:01:55: That is exactly what they needed to do!

00:01:58: Ease pressure on the long end of the Yield Curve to maintain barbing costs in check.

00:02:04: So I think yesterdays decision by the Fed was a healthy one.

00:02:08: Stuck's chore gave a negative knee jerk reaction.

00:02:11: The Dow Jones industrial index, for example dropped more than one percent in yesterday's trading session but this MP-Five hundred lost less about point forty five percent and Nasdaq hundred closed the session flat.

00:02:24: Smy conductors on the other hand helped countering losses on the index level as Intel jumped four percent yesterday on reports that it is in talks with SK Heinecks, yes to Korea's escape.

00:02:36: Heineck overproducing member chips in the United States.

00:02:40: That should have given some relief to Donald Trump.

00:02:42: Now futures are in the positive this morning at the time I'm talking here.

00:02:46: They're also bolstered by a sharp retreat that we saw oil prices yesterday as Saudi Arabia ease supply fears By offering additional career too Asian refiners via ship-to-ship transfers of Oman Soha Airport while also working to restore roughly half they said, half the damage East West Pipeline's capacity.

00:03:10: within days.

00:03:11: Now that doesn't result in the broader Middle East issue, but it helps!

00:03:15: So moving forward attention turns to Bank of England and Bank of Japan due to decide in their coming hours.

00:03:21: The bank of england is expected to stay pat while the Bank of japan is expected To hike.

00:03:26: so let's start with the Bank Of England where taking a step seems relatively complex for the policymakers.

00:03:33: That's because on one hand, The British economy printed surprising this strong growth number so far this year.

00:03:39: that was partly thanks to AI-led productivity gains and despite higher energy prices.

00:03:46: And at the same time UK has an inflation problem like everyone else Now.

00:03:51: yesterdays' inflation data from the UK were mixed Cool end services inflation remain unchanged, still well above the Bank of England's two percent inflation target.

00:04:02: while producer prices in August rose more than expected by analysts and that obviously suggested the energy shock has yet to generate meaningful second round inflationary effects.

00:04:14: The knee-jerk reaction to the data from Sterling was a pullback on softening Bank of England expectations for an immediate rate hike today, the move also amplified by a broad base rally later this year.

00:04:29: but inflation will certainly run before it falls in the UK.

00:04:33: If nothing, the energy price cap there will rise another four percent in October with a potential further increase expected in January if wholesale energy prices remain elevated.

00:04:44: The latter are supportive of hawkish policy stands obviously and markets actually pricing FOUR.

00:04:50: Yes, full rate hikes from the Bank Of England next twelve months!

00:04:54: But on the other hand... The UK economy is literally bleeding jobs.

00:04:58: The country lost two hundred forty thousand jobs, nearly a quarter of a million jobs since the end of three thousand twenty four.

00:05:06: That is a lot.

00:05:07: And the country has massive fiscal problems, if you haven't heard and investors now demand nearly five point thirty to five-point forty percent yield for ten year guilds.

00:05:17: The third year guild's yield approaches six per cent mark at highest levels since nineteen ninety eight.

00:05:25: An encouraging news in the UK that the countries debt to GDP ratio remains stablish.

00:05:29: it touched below one hundredth of its market and an eye on productivity gains could eventually encourage a further improvement in the debt-to-GDP ratio.

00:05:40: The bad news is that we will have to wait for it because inflation will continue to bite and fiscal headaches won't evaporate overnight even with AI, so that sets the scene for rate hikes in the United Kingdom for sure.

00:05:54: So again investors had already baked four interest rates from the Bank of England over next twelve months.

00:06:01: That's similar to four interest rate hikes expected from the ECB over this same period, and we will have a better understanding on how the MPC members look at the picture in few hours now.

00:06:12: Raising the Interest Race right is no-brainer faced with rising inflation as said ECB Chief Kristen Lagarde last week expressed her following the ECb's second interest rate hike since summer, but raising interest rates without having clarity on the fiscal picture and how the markets will take it is not what economists would do.

00:06:34: Also rate hikes in the UK happen to be more severe on households as they have shorter term mortgages and see the impact very quickly on their finances.

00:06:44: As such I don't really think that we'll get a life-changing moment for the U.K from Bank of England today.

00:06:49: Fiscal measures announced in the budget in October will carry more weight value in the medium run as they will be impacting Bank of England's assessment.

00:07:08: How much?

00:07:09: Until then, cable will certainly remain in the passenger seat as US dollar will likely continue to define the broad trajectory.

00:07:17: In short one we could see cables stepping into a bearish consolidation zone and lose more field against U.S.

00:07:23: dollar but in medium run cable remains on longer term positive trend above.

00:07:33: Now let's fly to Japan.

00:07:35: The Bank of Japan is expected to lift interest rates in Friday's monetary policy decision, listening what Besan did and said over the past weeks I'm talking about the core intervention with Japanese to reverse the yen selling.

00:07:50: the house now.

00:07:51: That he knows what is up there in Japan, and that he has asymmetric information about the Bank of Japan's policy intentions which actually spoke to Japanese policymakers.

00:08:01: but with all that I somehow got the feeling that The Bank Of Japan could walk the talk and raise interest rates this week!

00:08:08: And beyond all that blah blah i think they don't have any other option left really.

00:08:12: because imagine if the bank of japan didn't raise their interest rate this week then it would collapse faster than collapse, even more so as hawkish Fed expectations gained fields since yesterday.

00:08:24: And because the Bank of Japan knows that we know it knows what will matter most for the Japanese yen's trajectory from now is What Will Happen Beyond This Months Policy Decision?

00:08:34: Is The Bank Of Japan ready to hike more?

00:08:36: Hike consecutively!

00:08:37: Hike until We No Longer Consider Their Monetary Policy As Being A Commodator.

00:08:42: Hike Until It Reaches Some Kind Of Neutral Rate.

00:08:45: Now For Japan Roughly one and a half to two percent looks like reasonable range.

00:08:49: To think about the nominal neutral policy rate there, And it would mean one or three more interest rates hikes after this week's hike in Japan The bank of japan won't say that obviously but It could give hints.

00:09:03: depending on these hints Or the lack they're off Japanese yen traders will decide whether the dollar yen deserves to ease below the One hundred fifty level or return above the one hundred sixty psychological mark and keep fighting the yen bears with water pistols.

00:09:19: So this is all for today, I'm Ipekos Kardeskaya!

00:09:23: And thank you for joining me.

00:09:24: and Thank You For All Your Beautiful And Supportive

00:09:27: Comments!!

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