Connecting Global Markets and Policy

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SGH Macro Advisors produces concise, forward-looking proprietary reports on the major central banks and on key economic and policy developments that drive global bond, equity, and currency markets.
Founded in 2009, SGH has over the years built a reputation as a thought leader and source of well-informed, cutting-edge information, analysis, and insight on policy and financial markets. Its briefings and reports are highly valued by many of the world’s most well-known and influential hedge funds, money managers, and policymakers.
Highlights
SGH reports are highly valued for keeping clients and policymakers informed and well-ahead of market consensus.
November 3, 2023
SGH Insight
The Bank of Japan (BOJ) this week removed its last hurdle to ending negative interest rates and opened a window to a move to a positive policy setting between January and April next year.
The BOJ will likely consider a 25 basis points move to set policy at 15 bps in April from minus 10 bps, with the risks weighted toward bringing that decision forward to the January BOJ forecast round rather than delaying it beyond April.
(2) Despite throwing a veritable fiscal kitchen sink at the electorate, Kishida’s popularity ratings have continued to sag, dashing his prospect of getting full party support this year should he call an early election.
With the blessing of his ruling LDP party, he will now likely wait until September next year to call elections as he tries to engineer a more positive economic runway.
Kishida is looking to three elements to help boost his standing and his chances of being reelected. Firstly, he will play a large role in ensuring the next round of wage negotiations results in another hefty increase of around 3.5% in salaries to workers in March/April next year
(3) Despite throwing a veritable fiscal kitchen sink at the electorate, Kishida’s popularity ratings have continued to sag, dashing his prospect of getting full party support this year should he call an early election.
With the blessing of his ruling LDP party, he will now likely wait until September next year to call elections as he tries to engineer a more positive economic runway.
Market Validation
The BOJ will likely consider a 25 basis points move to set policy at 15 bps in April from minus 10 bps, with the risks weighted toward bringing that decision forward to the January BOJ forecast round rather than delaying it beyond April.
(2) Despite throwing a veritable fiscal kitchen sink at the electorate, Kishida’s popularity ratings have continued to sag, dashing his prospect of getting full party support this year should he call an early election.
With the blessing of his ruling LDP party, he will now likely wait until September next year to call elections as he tries to engineer a more positive economic runway.
Kishida is looking to three elements to help boost his standing and his chances of being reelected. Firstly, he will play a large role in ensuring the next round of wage negotiations results in another hefty increase of around 3.5% in salaries to workers in March/April next year
(3) Despite throwing a veritable fiscal kitchen sink at the electorate, Kishida’s popularity ratings have continued to sag, dashing his prospect of getting full party support this year should he call an early election.
With the blessing of his ruling LDP party, he will now likely wait until September next year to call elections as he tries to engineer a more positive economic runway.
Bloomberg 12/7/2023
Traders are rapidly increasing bets that the
Bank of Japan will scrap the world’s last negative interest-rate
regime as soon as this month after jumping on comments from the
central bank’s leadership.
A sharp strengthening of the yen and the biggest move in
Japanese bond yields in a year served as a stark reminder to
international investors that a major anchor for global borrowing
costs may soon be dislodged.
Ueda told lawmakers in parliament that his job was going to
get more challenging from the year-end, helping fuel speculation
of a near-term scrapping of the sub-zero rate. While that
comment came in response to questions, his subsequent visit to
Prime Minister Fumio Kishida’s office to discuss his monetary
policy stance seemed more like a staged move aimed at delivering
a signal.
(2) Bloomberg 11/7/2023
The Japanese government is making
arrangements to meet with labor groups and businesses this month
to discuss continued increases in wages, Nikkei reports, without
attribution.
* Prime Minister Fumio Kishida and related ministers will attend
(3) Bloomberg 11/9/2003
Japanese Prime Minister Fumio Kishida has
decided against calling an election before the end of the year,
Kyodo News and other media reported, after a promise of tax
rebates failed to stop a slide in his support rates.
Kishida ruled out dissolving the lower house of parliament
to hold a snap election in order to implement his economic plans
on a tight political schedule, Kyodo reported Thursday, citing a
close aide it did not name.
Traders are rapidly increasing bets that the
Bank of Japan will scrap the world’s last negative interest-rate
regime as soon as this month after jumping on comments from the
central bank’s leadership.
A sharp strengthening of the yen and the biggest move in
Japanese bond yields in a year served as a stark reminder to
international investors that a major anchor for global borrowing
costs may soon be dislodged.
Ueda told lawmakers in parliament that his job was going to
get more challenging from the year-end, helping fuel speculation
of a near-term scrapping of the sub-zero rate. While that
comment came in response to questions, his subsequent visit to
Prime Minister Fumio Kishida’s office to discuss his monetary
policy stance seemed more like a staged move aimed at delivering
a signal.
(2) Bloomberg 11/7/2023
The Japanese government is making
arrangements to meet with labor groups and businesses this month
to discuss continued increases in wages, Nikkei reports, without
attribution.
* Prime Minister Fumio Kishida and related ministers will attend
(3) Bloomberg 11/9/2003
Japanese Prime Minister Fumio Kishida has
decided against calling an election before the end of the year,
Kyodo News and other media reported, after a promise of tax
rebates failed to stop a slide in his support rates.
Kishida ruled out dissolving the lower house of parliament
to hold a snap election in order to implement his economic plans
on a tight political schedule, Kyodo reported Thursday, citing a
close aide it did not name.
December 5, 2023
SGH Insight
With Governor Tiff Macklem having all but declared the peak in the Bank of Canada’s (BOC) hiking cycle, this week’s meeting will hold rates at 5% and likely pivot to conditional dovish language that suggests the central bank will ease rates early next year.
The Bank’s efforts now are focused on trying to maintain a “higher for longer” policy strategy that extends through the turn of the year before it shifts to signaling rate cuts.
For this week’s meeting, BOC staff have likely crafted language options for the post meeting statement that acknowledge the aggressive campaign of higher rates are working even as the central bank reiterates its resolve to seeing inflation back to target.
Though this meeting’s message will continue to reiterate the central bank’s willingness to raise rates again “if high inflation persists,” the Bank will note that it is patient in looking for additional confirmation that tells it the inflation job is done.
Market Validation
The Bank’s efforts now are focused on trying to maintain a “higher for longer” policy strategy that extends through the turn of the year before it shifts to signaling rate cuts.
For this week’s meeting, BOC staff have likely crafted language options for the post meeting statement that acknowledge the aggressive campaign of higher rates are working even as the central bank reiterates its resolve to seeing inflation back to target.
Though this meeting’s message will continue to reiterate the central bank’s willingness to raise rates again “if high inflation persists,” the Bank will note that it is patient in looking for additional confirmation that tells it the inflation job is done.
Bloomberg 12/6/23
The Bank of Canada held interest rates steady for a third consecutive meeting, acknowledging a stalled economy while keeping the door open to further hikes as they watch for more progress on slowing inflation.
Policymakers led by Governor Tiff Macklem left the benchmark overnight rate unchanged at 5% on Wednesday, the highest level in 22 years. The pause was expected by markets and by economists in a Bloomberg survey.
Officials say recent data suggest the economy is no longer in “excess demand” and their hiking campaign is dampening spending and price pressures. They eliminated a line from the October decision that said inflationary risks have increased, but said they’re prepared to raise borrowing costs again if necessary.
“Governing council is still concerned about the risks to the outlook for inflation and remains prepared to raise the policy rate further if needed,” the bank said, adding that they want to see “further and sustained easing in core inflation.”
The more neutral language in the statement suggests policymakers are increasingly confident interest rates are restrictive enough to bring inflation back to the 2% target. Still, officials will want to see more progress on core inflation, which strips out the effect of more volatile items, before declaring victory.
The Bank of Canada held interest rates steady for a third consecutive meeting, acknowledging a stalled economy while keeping the door open to further hikes as they watch for more progress on slowing inflation.
Policymakers led by Governor Tiff Macklem left the benchmark overnight rate unchanged at 5% on Wednesday, the highest level in 22 years. The pause was expected by markets and by economists in a Bloomberg survey.
Officials say recent data suggest the economy is no longer in “excess demand” and their hiking campaign is dampening spending and price pressures. They eliminated a line from the October decision that said inflationary risks have increased, but said they’re prepared to raise borrowing costs again if necessary.
“Governing council is still concerned about the risks to the outlook for inflation and remains prepared to raise the policy rate further if needed,” the bank said, adding that they want to see “further and sustained easing in core inflation.”
The more neutral language in the statement suggests policymakers are increasingly confident interest rates are restrictive enough to bring inflation back to the 2% target. Still, officials will want to see more progress on core inflation, which strips out the effect of more volatile items, before declaring victory.
December 1, 2023
SGH Insight
Slower-than-expected inflation in October reinforces the likelihood that the Reserve Bank of Australia (RBA) will not only stand pat when it meets on December 5, but is probably done hiking rates and will face the prospect of having to ease policy in the second half of next year.
Continued persistence in underlying inflation measures, well above the RBA’s 2-3% target range will see the RBA continue to reiterate a tightening bias in its communications at the upcoming meeting and likely through the turn of the year.
But after 425 bps of rate hikes since April 2022, we think the Bank views the 4.35%-cash rate as sufficiently restrictive to help it navigate inflation back to the top side of its 2-3% target band by the end of 2025.
Market Validation
Continued persistence in underlying inflation measures, well above the RBA’s 2-3% target range will see the RBA continue to reiterate a tightening bias in its communications at the upcoming meeting and likely through the turn of the year.
But after 425 bps of rate hikes since April 2022, we think the Bank views the 4.35%-cash rate as sufficiently restrictive to help it navigate inflation back to the top side of its 2-3% target band by the end of 2025.
Xinhua 12/5/23
The Reserve Bank of Australia (RBA) on Tuesday decided to keep the cash rate target on hold at 4.35 percent, after raising the rate by 25 basis points last month.
Following a monetary policy meeting, RBA Governor Michele Bullock said in a statement that holding the cash rate steady at this meeting would allow time to assess the impact of the increases in interest rates on demand, inflation and the labor market.
The limited information received on the domestic economy since the November meeting had been broadly in line with expectations, she said.
She insisted that returning inflation to target within a reasonable timeframe remained the RBA Board's priority.
The Reserve Bank of Australia (RBA) on Tuesday decided to keep the cash rate target on hold at 4.35 percent, after raising the rate by 25 basis points last month.
Following a monetary policy meeting, RBA Governor Michele Bullock said in a statement that holding the cash rate steady at this meeting would allow time to assess the impact of the increases in interest rates on demand, inflation and the labor market.
The limited information received on the domestic economy since the November meeting had been broadly in line with expectations, she said.
She insisted that returning inflation to target within a reasonable timeframe remained the RBA Board's priority.
November 30, 2023
SGH Insight
• Fade hawkish Fed comments. The Fedspeak is behind the curve, and any speaker still pushing for higher rates is actively choosing to make themselves irrelevant. The Fed isn’t raising rates again (sure, yes, there is always a chance something unexpected happens, but that seems like a negligible risk now). Given where this is heading over the next year, it’s just foolish to raise rates again even if we get a couple of bad CPI prints, and Chair Powell isn’t foolish.
• That also means fade any hawkish Powell comments. This one will be hard, I get it. It’s the Chair, but remember my outlook is about where the Fed is heading, not what they are saying now. Clients keep asking if Powell will be hawkish tomorrow, and unfortunately the reaction to Powell will be in part what the market wants. It’s going to be hard to push market odds of March higher than 50% without more data, and if Powell won’t validate market pricing, which is my baseline, then market pricing for a March cut can pull back. I expect Powell will follow recent commentary with a risk that he is more dovish because if there is a chance of a March cut, he needs to start normalizing that at the next FOMC meeting.
Market Validation
• That also means fade any hawkish Powell comments. This one will be hard, I get it. It’s the Chair, but remember my outlook is about where the Fed is heading, not what they are saying now. Clients keep asking if Powell will be hawkish tomorrow, and unfortunately the reaction to Powell will be in part what the market wants. It’s going to be hard to push market odds of March higher than 50% without more data, and if Powell won’t validate market pricing, which is my baseline, then market pricing for a March cut can pull back. I expect Powell will follow recent commentary with a risk that he is more dovish because if there is a chance of a March cut, he needs to start normalizing that at the next FOMC meeting.
Bloomberg 12/1/23
Bonds Up as Powell Pushback Lasts ‘A Few Seconds’
Treasuries and stocks pushed higher, with the market boosting bets on rate cuts next year after Jerome Powell signaled the Federal Reserve will possibly stay put this month — even as he retained the option to hike further.
Two-year yields dropped nine basis points to below 4.6%. The S&P 500 traded near session highs. “Having come so far so quickly, the FOMC is moving forward carefully, as the risks of under- and over-tightening are becoming more balanced,” Powell said at Spelman College in Atlanta. The dollar retreated. Fed swaps priced in additional easing by the end of 2024. Traders expect the effective Fed funds rate will fall to about 4.07% from 5.33% currently.
Bonds Up as Powell Pushback Lasts ‘A Few Seconds’
Treasuries and stocks pushed higher, with the market boosting bets on rate cuts next year after Jerome Powell signaled the Federal Reserve will possibly stay put this month — even as he retained the option to hike further.
Two-year yields dropped nine basis points to below 4.6%. The S&P 500 traded near session highs. “Having come so far so quickly, the FOMC is moving forward carefully, as the risks of under- and over-tightening are becoming more balanced,” Powell said at Spelman College in Atlanta. The dollar retreated. Fed swaps priced in additional easing by the end of 2024. Traders expect the effective Fed funds rate will fall to about 4.07% from 5.33% currently.
November 27, 2023
SGH Insight
Upcoming Data and Events
We get a steady stream of data this week but note that the November employment report won’t arrive until next week.
Monday we get new home sales for October, with the number expected to be weaker than November as buyers delayed purchases due to high mortgage rates.
...Track Waller’s evolution of his thinking on the economy and implications for monetary policy. He said this ahead of the November FOMC meeting:
What does that mean for monetary policy? I will be looking carefully at the data to see whether the real side of the economy begins to cool off or whether prices, the nominal side of the economy, heat up. As of today, it is too soon to tell. Consequently, I believe we can wait, watch and see how the economy evolves before making definitive moves on the path of the policy rate. Should the real side of the economy soften, we will have more room to wait on any further rate hikes and let the recent run-up on longer-term rates do some of our work. But if the real economy continues showing underlying strength and inflation appears to stabilize or reaccelerate, more policy tightening is likely needed despite the recent run up in longer term rates.
Waller can build on this and simply say that data since this speech indicated a cooler economy with lower-than-expected inflation, validating the Fed’s decision to stay on hold in November and to remain on hold (watch and wait) in December. He will likely continue to couch his outlook as a debate about the need for another rate hike and not say that rates are “sufficiently restrictive.” Obviously, it would be a dovish surprise if he couches his outlook in terms of “how long to hold rates at this level.”
...Waller will need to tread carefully around the issue of financial conditions. I suspect he thinks any further easing is premature, but also would say that conditions have tightened since the Fed’s last rate hike, implying that the easing since the November meeting still leaves conditions restrictive. As a hawkish surprise, Waller could say the recent easing lowers the bar for another rate hike, something some market participants believe. I suspect this would be counterproductive given recent data, but if he wants to go that direction, then market participants will likely push long yields back up to 5% and will bring back that 8% mortgage rate Powell clearly didn’t like.
Market Validation
We get a steady stream of data this week but note that the November employment report won’t arrive until next week.
Monday we get new home sales for October, with the number expected to be weaker than November as buyers delayed purchases due to high mortgage rates.
...Track Waller’s evolution of his thinking on the economy and implications for monetary policy. He said this ahead of the November FOMC meeting:
What does that mean for monetary policy? I will be looking carefully at the data to see whether the real side of the economy begins to cool off or whether prices, the nominal side of the economy, heat up. As of today, it is too soon to tell. Consequently, I believe we can wait, watch and see how the economy evolves before making definitive moves on the path of the policy rate. Should the real side of the economy soften, we will have more room to wait on any further rate hikes and let the recent run-up on longer-term rates do some of our work. But if the real economy continues showing underlying strength and inflation appears to stabilize or reaccelerate, more policy tightening is likely needed despite the recent run up in longer term rates.
Waller can build on this and simply say that data since this speech indicated a cooler economy with lower-than-expected inflation, validating the Fed’s decision to stay on hold in November and to remain on hold (watch and wait) in December. He will likely continue to couch his outlook as a debate about the need for another rate hike and not say that rates are “sufficiently restrictive.” Obviously, it would be a dovish surprise if he couches his outlook in terms of “how long to hold rates at this level.”
...Waller will need to tread carefully around the issue of financial conditions. I suspect he thinks any further easing is premature, but also would say that conditions have tightened since the Fed’s last rate hike, implying that the easing since the November meeting still leaves conditions restrictive. As a hawkish surprise, Waller could say the recent easing lowers the bar for another rate hike, something some market participants believe. I suspect this would be counterproductive given recent data, but if he wants to go that direction, then market participants will likely push long yields back up to 5% and will bring back that 8% mortgage rate Powell clearly didn’t like.
Bloomberg 11/29/23
• Forecast range 680k-773k from 50 estimates, median 721k
• New home sales fell 40k in Oct. from prior month, the Census Bureau said
...Governor Christopher J. Waller 11/27/23
At the American Enterprise Institute, Washington, D.C.
I am encouraged by what we have learned in the past few weeks—something appears to be giving, and it's the pace of the economy. Data for October indicated an easing in economic activity, and forecasts for the fourth quarter show the kind of moderation that is more in keeping with progress on lowering inflation. In addition, after watching core PCE inflation increase in September from its summer lows, the latest data showed inflation moving in the right direction in October, albeit gradually.
While I am encouraged by the early signs of moderating economic activity in the fourth quarter based on the data in hand, inflation is still too high, and it is too early to say whether the slowing we are seeing will be sustained. But I am increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2 percent. That said, there is still significant uncertainty about the pace of future activity, and so I cannot say for sure whether the FOMC has done enough to achieve price stability. Hopefully, the data we receive over the next couple of months will help answer that question.
...Governor Christopher J. Waller 11/27/23
At the American Enterprise Institute, Washington, D.C.
There has also been a lot of discussion about the overall easing of financial conditions this month, as reflected in market interest rates and the prices of other assets. To put this easing into perspective, from July to the end of October, the yield on the ten-year Treasury increased about 1 percentage point. Since the FOMC's last meeting, which ended November 1, the ten-year rate has fallen six tenths of a percentage point. Long-term interest rates are still higher than they were before the middle of the year, and overall financial conditions are tighter, which should be putting downward pressure on household and business spending. But the recent loosening of financial conditions is a reminder that many factors can affect these conditions and that policymakers must be careful about relying on such tightening to do our job.
• Forecast range 680k-773k from 50 estimates, median 721k
• New home sales fell 40k in Oct. from prior month, the Census Bureau said
...Governor Christopher J. Waller 11/27/23
At the American Enterprise Institute, Washington, D.C.
I am encouraged by what we have learned in the past few weeks—something appears to be giving, and it's the pace of the economy. Data for October indicated an easing in economic activity, and forecasts for the fourth quarter show the kind of moderation that is more in keeping with progress on lowering inflation. In addition, after watching core PCE inflation increase in September from its summer lows, the latest data showed inflation moving in the right direction in October, albeit gradually.
While I am encouraged by the early signs of moderating economic activity in the fourth quarter based on the data in hand, inflation is still too high, and it is too early to say whether the slowing we are seeing will be sustained. But I am increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2 percent. That said, there is still significant uncertainty about the pace of future activity, and so I cannot say for sure whether the FOMC has done enough to achieve price stability. Hopefully, the data we receive over the next couple of months will help answer that question.
...Governor Christopher J. Waller 11/27/23
At the American Enterprise Institute, Washington, D.C.
There has also been a lot of discussion about the overall easing of financial conditions this month, as reflected in market interest rates and the prices of other assets. To put this easing into perspective, from July to the end of October, the yield on the ten-year Treasury increased about 1 percentage point. Since the FOMC's last meeting, which ended November 1, the ten-year rate has fallen six tenths of a percentage point. Long-term interest rates are still higher than they were before the middle of the year, and overall financial conditions are tighter, which should be putting downward pressure on household and business spending. But the recent loosening of financial conditions is a reminder that many factors can affect these conditions and that policymakers must be careful about relying on such tightening to do our job.
November 20, 2023
SGH Insight
Published on November 20, 2023
Monday Morning Notes, 11/20/23
The Fed releases the minutes of the November FOMC meeting on Tuesday. We expect the tone of the minutes will reflect further gradual shifting toward “sufficiently restrictive,” but think the minutes will fall short of declaring that July was definitively the last rate hike. We are looking to see if participants generally agreed that rates were “probably significantly restrictive” and risks “more broadly balanced” as signals of a more dovish policy direction. We think it remains too early for the Fed to declare that this cycle’s pause began back in July because the Fed knows that with such a declaration, markets will pull forward expectations of a rate cut. The Fed won’t make such a move until it has more confidence that it is closer to a rate hike.
...Better-than-expected inflation numbers drove market pricing last week. Market participants prepared for an upside miss to the consensus expectations of 0.3% core CPI inflation; the whisper number was 0.4%. Instead, core inflation printed at 0.2% and was subsequently followed by soft PPI numbers. Combined, expectations are the core-PCE will come in below 0.2% for March and help ensure that 2023 inflation will come in well below the Fed’s September forecast of 3.8%.
Market Validation
Monday Morning Notes, 11/20/23
The Fed releases the minutes of the November FOMC meeting on Tuesday. We expect the tone of the minutes will reflect further gradual shifting toward “sufficiently restrictive,” but think the minutes will fall short of declaring that July was definitively the last rate hike. We are looking to see if participants generally agreed that rates were “probably significantly restrictive” and risks “more broadly balanced” as signals of a more dovish policy direction. We think it remains too early for the Fed to declare that this cycle’s pause began back in July because the Fed knows that with such a declaration, markets will pull forward expectations of a rate cut. The Fed won’t make such a move until it has more confidence that it is closer to a rate hike.
...Better-than-expected inflation numbers drove market pricing last week. Market participants prepared for an upside miss to the consensus expectations of 0.3% core CPI inflation; the whisper number was 0.4%. Instead, core inflation printed at 0.2% and was subsequently followed by soft PPI numbers. Combined, expectations are the core-PCE will come in below 0.2% for March and help ensure that 2023 inflation will come in well below the Fed’s September forecast of 3.8%.
FOMC minutes 11/21/23
(1)Participants' Views on Current Conditions and the Economic Outlook
Participants noted that real GDP had expanded at an unexpectedly strong pace in the third quarter, boosted by a surge in consumer spending. Nevertheless, participants judged that aggregate demand and aggregate supply continued to come into better balance, as a result of the current restrictive stance of monetary policy and the continued normalization of aggregate supply conditions. Participants assessed that while labor market conditions remained tight, they had eased since earlier in the year, partly as a result of recent increases in labor supply. Participants judged that the current stance of monetary policy was restrictive and was putting downward pressure on economic activity and inflation. In addition, they noted that financial conditions had tightened significantly in recent months.
(2) Participants expected that the data arriving in coming months would help clarify the extent to which the disinflation process was continuing, aggregate demand was moderating in the face of tighter financial and credit conditions, and labor markets were reaching a better balance between demand and supply.
(3) Participants discussed several risk-management considerations that could bear on future policy decisions. Participants generally judged that, with the stance of monetary policy in restrictive territory, risks to the achievement of the Committee's goals had become more two sided.
...Bloomberg Economics 11/30/23
OUR TAKE: The October personal income and spending report shows why FOMC members are increasingly confident that rates are sufficiently restrictive. With softening income growth and some help from falling energy prices, the PCE deflator — the Fed’s preferred metric for assessing progress on its inflation mandate — is on track to come in lower than the median FOMC member’s forecast for end-2023. The momentum is for disinflation to continue through at least mid-2024, when core PCE inflation likely will fall below 3%.
(1)Participants' Views on Current Conditions and the Economic Outlook
Participants noted that real GDP had expanded at an unexpectedly strong pace in the third quarter, boosted by a surge in consumer spending. Nevertheless, participants judged that aggregate demand and aggregate supply continued to come into better balance, as a result of the current restrictive stance of monetary policy and the continued normalization of aggregate supply conditions. Participants assessed that while labor market conditions remained tight, they had eased since earlier in the year, partly as a result of recent increases in labor supply. Participants judged that the current stance of monetary policy was restrictive and was putting downward pressure on economic activity and inflation. In addition, they noted that financial conditions had tightened significantly in recent months.
(2) Participants expected that the data arriving in coming months would help clarify the extent to which the disinflation process was continuing, aggregate demand was moderating in the face of tighter financial and credit conditions, and labor markets were reaching a better balance between demand and supply.
(3) Participants discussed several risk-management considerations that could bear on future policy decisions. Participants generally judged that, with the stance of monetary policy in restrictive territory, risks to the achievement of the Committee's goals had become more two sided.
...Bloomberg Economics 11/30/23
OUR TAKE: The October personal income and spending report shows why FOMC members are increasingly confident that rates are sufficiently restrictive. With softening income growth and some help from falling energy prices, the PCE deflator — the Fed’s preferred metric for assessing progress on its inflation mandate — is on track to come in lower than the median FOMC member’s forecast for end-2023. The momentum is for disinflation to continue through at least mid-2024, when core PCE inflation likely will fall below 3%.
November 21, 2023
SGH Insight
We will know in the coming days how Berlin intends to handle the fallout, but suspending the constitutional debt brake for another year or two appears to be shaping up as the best option for all as things now stand. Indeed, sources close to Lindner, from within his FDP party, are acknowledging that a suspension of the debt brake may be the only solution here. One idea is to suspend the brake for 2023 only, instead of for two years, which would secure the 60 billion euros for now but effectively punt the larger problem to 2024.
A decision is likely this week possibly by or at a cabinet meeting scheduled for Thursday.
Market Validation
A decision is likely this week possibly by or at a cabinet meeting scheduled for Thursday.
Bloomberg 11/22/23
The coalition can suspend the debt brake rule with its
majority in the lower house of parliament, though it would also
be potentially exposing itself to another legal challenge.
In what may have been the first hint of an imminent
climbdown, one of Lindner’s economic advisers was quoted as
saying Tuesday that a retroactive emergency suspension of the
debt brake for 2023 would be justifiable.
Bloomberg 11/28/23
German Chancellor Olaf Scholz’s government approved a supplementary 2023 budget that includes the suspension of rules limiting net new borrowing for a fourth consecutive year.
Scholz’s coalition was forced into lifting the so-called debt brake again after a ruling this month by the nation’s top court meant that tens of billions of euros of debt in special funds would have to be accounted for in the regular federal budget.
While it doesn’t mean that Germany is adding to its debt burden, it lifts the figure for net borrowing for this year by €25 billion ($27.4 billion) to €70.6 billion, according to the Finance Ministry. In the original 2023 plan approved at the end of last year, it was €45.6 billion.
The coalition can suspend the debt brake rule with its
majority in the lower house of parliament, though it would also
be potentially exposing itself to another legal challenge.
In what may have been the first hint of an imminent
climbdown, one of Lindner’s economic advisers was quoted as
saying Tuesday that a retroactive emergency suspension of the
debt brake for 2023 would be justifiable.
Bloomberg 11/28/23
German Chancellor Olaf Scholz’s government approved a supplementary 2023 budget that includes the suspension of rules limiting net new borrowing for a fourth consecutive year.
Scholz’s coalition was forced into lifting the so-called debt brake again after a ruling this month by the nation’s top court meant that tens of billions of euros of debt in special funds would have to be accounted for in the regular federal budget.
While it doesn’t mean that Germany is adding to its debt burden, it lifts the figure for net borrowing for this year by €25 billion ($27.4 billion) to €70.6 billion, according to the Finance Ministry. In the original 2023 plan approved at the end of last year, it was €45.6 billion.
November 6, 2023
SGH Insight
Questions and Answers
SGH Insight
What will Governor Waller say Tuesday?
His topic is “using economic data to understand the economy,” which could lend itself to new insights into the path for policy but in practice Waller typically gives one economic update per inter-meeting period and that is usually closer to the blackout. Consequently, I think he will follow the message of his last speech or Powell’s press conference and not add any new insights during the Q&A. If anything, he could use this topic and the latest JOLTS and employment reports to take a victory lap as he correctly predicted that the Fed could take the heat off the labor market without mass layoffs. That would speak toward peak rates, but I suspect he would add the caveat that the Fed has been fooled by inflation before. That said, if I were him, I would feel pretty confident about the path of inflation.
...With it increasingly clear that the Fed reached the peak of this cycle back in July, we can begin wargaming the first rate cut of the cycle. This isn’t any more about just setting policy to prevent the 2024 inflation forecast from rising. It’s about managing that while preventing the 2024 unemployment forecast from rising as well. Regardless of any Fed protestations otherwise, market participants will likely start pricing in a greater risk of a March cut on weaker economic data.
...With it increasingly clear that the Fed reached the peak of this cycle back in July, we can begin wargaming the first rate cut of the cycle. This isn’t any more about just setting policy to prevent the 2024 inflation forecast from rising. It’s about managing that while preventing the 2024 unemployment forecast from rising as well. Regardless of any Fed protestations otherwise, market participants will likely start pricing in a greater risk of a March cut on weaker economic data.
Market Validation
SGH Insight
What will Governor Waller say Tuesday?
His topic is “using economic data to understand the economy,” which could lend itself to new insights into the path for policy but in practice Waller typically gives one economic update per inter-meeting period and that is usually closer to the blackout. Consequently, I think he will follow the message of his last speech or Powell’s press conference and not add any new insights during the Q&A. If anything, he could use this topic and the latest JOLTS and employment reports to take a victory lap as he correctly predicted that the Fed could take the heat off the labor market without mass layoffs. That would speak toward peak rates, but I suspect he would add the caveat that the Fed has been fooled by inflation before. That said, if I were him, I would feel pretty confident about the path of inflation.
...With it increasingly clear that the Fed reached the peak of this cycle back in July, we can begin wargaming the first rate cut of the cycle. This isn’t any more about just setting policy to prevent the 2024 inflation forecast from rising. It’s about managing that while preventing the 2024 unemployment forecast from rising as well. Regardless of any Fed protestations otherwise, market participants will likely start pricing in a greater risk of a March cut on weaker economic data.
...With it increasingly clear that the Fed reached the peak of this cycle back in July, we can begin wargaming the first rate cut of the cycle. This isn’t any more about just setting policy to prevent the 2024 inflation forecast from rising. It’s about managing that while preventing the 2024 unemployment forecast from rising as well. Regardless of any Fed protestations otherwise, market participants will likely start pricing in a greater risk of a March cut on weaker economic data.
Bloomberg 11/8/2023
Federal Reserve Governor Christopher Waller said the US labor market is cooling this year without there being a big spike in unemployment as the economy has returned to a better balance between the supply and demand for workers.
“It’s slowing down,” Waller said in a speech in St. Louis. “We’re looking at the labor market, we’re seeing it normalized” and getting into “better balance between supply and demand.”
Waller made his comments following signs the labor market has shown of easing. Nonfarm payrolls increased by 150,000 last month following a downwardly revised 297,000 gain in September, a Bureau of Labor Statistics report showed Friday. The unemployment rate climbed to 3.9%, and monthly wage growth slowed.
The Fed governor pointed out that the ratio of job openings to the number of unemployed workers has come down in recent months.
“What we’ve seen since May ‘22, vacancies have kind of come down and the unemployment rate is still very, very low,” he said.
...MarketWatch 11/14/2023
Not only are traders seeing a higher likelihood of the
Federal Reserve cutting interest rates up to five times in 2024, they now
expect the first cut could arrive as soon as March, almost exactly two years
after the Fed started its most aggressive rate-hiking cycle since the 1980s.
According to CME Group's FedWatch tool, perceived chances of a rate cut from
the Fed arriving in March have risen to nearly 27%, up from 10.5% a day
earlier.
Bloomberg 11/14/23
Treasury yields plunged Tuesday as a slower-
than-anticipated pace of consumer price growth last month
bolstered the view that the Federal Reserve’s most aggressive
interest-rate hiking cycle in decades is over.
The 10-year note’s yield fell as much as 19 basis points to
4.45, the lowest level since Sept 25. Meanwhile, the 30-year
bond’s yield fell 14 basis points to 4.65%. Swap contracts used
to hedge future Fed actions marked down the odds of another rate
increase to almost nil.
Federal Reserve Governor Christopher Waller said the US labor market is cooling this year without there being a big spike in unemployment as the economy has returned to a better balance between the supply and demand for workers.
“It’s slowing down,” Waller said in a speech in St. Louis. “We’re looking at the labor market, we’re seeing it normalized” and getting into “better balance between supply and demand.”
Waller made his comments following signs the labor market has shown of easing. Nonfarm payrolls increased by 150,000 last month following a downwardly revised 297,000 gain in September, a Bureau of Labor Statistics report showed Friday. The unemployment rate climbed to 3.9%, and monthly wage growth slowed.
The Fed governor pointed out that the ratio of job openings to the number of unemployed workers has come down in recent months.
“What we’ve seen since May ‘22, vacancies have kind of come down and the unemployment rate is still very, very low,” he said.
...MarketWatch 11/14/2023
Not only are traders seeing a higher likelihood of the
Federal Reserve cutting interest rates up to five times in 2024, they now
expect the first cut could arrive as soon as March, almost exactly two years
after the Fed started its most aggressive rate-hiking cycle since the 1980s.
According to CME Group's FedWatch tool, perceived chances of a rate cut from
the Fed arriving in March have risen to nearly 27%, up from 10.5% a day
earlier.
Bloomberg 11/14/23
Treasury yields plunged Tuesday as a slower-
than-anticipated pace of consumer price growth last month
bolstered the view that the Federal Reserve’s most aggressive
interest-rate hiking cycle in decades is over.
The 10-year note’s yield fell as much as 19 basis points to
4.45, the lowest level since Sept 25. Meanwhile, the 30-year
bond’s yield fell 14 basis points to 4.65%. Swap contracts used
to hedge future Fed actions marked down the odds of another rate
increase to almost nil.
November 6, 2023
SGH Insight
...WSJ 11/28/23
Fed governor Chris Waller on rate cuts: "If you see this [lower] inflation continuing for several more months, I don't know how long that might be—3 months? 4 months? 5 months?—you could then start lowering the policy rate because inflation's lower.
...Monday Morning Notes, 11/6/23
With it increasingly clear that the Fed reached the peak of this cycle back in July, we can begin wargaming the first rate cut of the cycle. This isn’t any more about just setting policy to prevent the 2024 inflation forecast from rising. It’s about managing that while preventing the 2024 unemployment forecast from rising as well. Regardless of any Fed protestations otherwise, market participants will likely start pricing in a greater risk of a March cut on weaker economic data.
The Fed will cut rates before inflation returns to 2%. Powell has already made this point clear, and it has long been in the SEP. The June SEP had 100bp of 2024 rate cuts with a year-end core inflation projection of 2.6%. Unless you believed that 100bp was going to all come in the fourth quarter, some of those rate cuts would come when inflation was above 2.6%. Still, doing so requires the Fed to see enough softness in the inflation numbers to be confident that inflation would remain on a path to price stability even with a rate cut.
Market Validation
With it increasingly clear that the Fed reached the peak of this cycle back in July, we can begin wargaming the first rate cut of the cycle. This isn’t any more about just setting policy to prevent the 2024 inflation forecast from rising. It’s about managing that while preventing the 2024 unemployment forecast from rising as well. Regardless of any Fed protestations otherwise, market participants will likely start pricing in a greater risk of a March cut on weaker economic data.
The Fed will cut rates before inflation returns to 2%. Powell has already made this point clear, and it has long been in the SEP. The June SEP had 100bp of 2024 rate cuts with a year-end core inflation projection of 2.6%. Unless you believed that 100bp was going to all come in the fourth quarter, some of those rate cuts would come when inflation was above 2.6%. Still, doing so requires the Fed to see enough softness in the inflation numbers to be confident that inflation would remain on a path to price stability even with a rate cut.
...WSJ 11/28/23
Fed governor Chris Waller on rate cuts: "If you see this [lower] inflation continuing for several more months, I don't know how long that might be—3 months? 4 months? 5 months?—you could then start lowering the policy rate because inflation's lower.
November 13, 2023
SGH Insight
Published on November 13, 2023
According to sources accompanying Xi on his trip, the Chinese leader said his talks with President Biden will be mainly to show the world that the two countries can manage their differences and avoid and prevent misunderstandings or fierce competition from veering into confrontation or conflict. China, he said, cannot expect economic and trade relations with the US to get back on track overnight, but the talks will inject confidence into the market if relations do not get worse.
In the run up to the summit, the Biden administration has laid out its top agenda items extensively in the media; foremost of which is a resumption of the military-to-military contacts between China and the US which Beijing cut off after the visit by then Speaker of the House Nancy Pelosi to Taiwan in August of 2022.
It is also notable that the White House has elevated to the top of its agenda the export from China of the precursor chemicals used to synthesize the deadly opioid fentanyl, which has led to the mass poisoning of around 250,000 Americans since Biden took office three years ago. It will come as no surprise that China’s exports of fentanyl precursors are not on the list of Xi Jinping’s top agenda items.
According to officials from China’s security apparatus, the most important topics for Xi will be overall US-China relations, bilateral military relations, Taiwan, the South China Sea, the Israeli-Palestinian conflict, and Ukraine.
As to economic matters, there is little to no expectation from any side of a major change to the issues important to either party, and Xi has indicated that he will not engage in these at any length.
Market Validation
According to sources accompanying Xi on his trip, the Chinese leader said his talks with President Biden will be mainly to show the world that the two countries can manage their differences and avoid and prevent misunderstandings or fierce competition from veering into confrontation or conflict. China, he said, cannot expect economic and trade relations with the US to get back on track overnight, but the talks will inject confidence into the market if relations do not get worse.
In the run up to the summit, the Biden administration has laid out its top agenda items extensively in the media; foremost of which is a resumption of the military-to-military contacts between China and the US which Beijing cut off after the visit by then Speaker of the House Nancy Pelosi to Taiwan in August of 2022.
It is also notable that the White House has elevated to the top of its agenda the export from China of the precursor chemicals used to synthesize the deadly opioid fentanyl, which has led to the mass poisoning of around 250,000 Americans since Biden took office three years ago. It will come as no surprise that China’s exports of fentanyl precursors are not on the list of Xi Jinping’s top agenda items.
According to officials from China’s security apparatus, the most important topics for Xi will be overall US-China relations, bilateral military relations, Taiwan, the South China Sea, the Israeli-Palestinian conflict, and Ukraine.
As to economic matters, there is little to no expectation from any side of a major change to the issues important to either party, and Xi has indicated that he will not engage in these at any length.
Bloomberg 11/16/23
Presidents Joe Biden and Xi Jinping emerged
from their first meeting in a year betting that a handful of
small victories will arrest a surge in US-China tensions that
has unnerved neighboring nations and threatened global economic
growth.
Expectations were low owing to deep-seated differences over
trade, Taiwan and human rights, and even the summit’s modest
accomplishments were hard-won. Those included deals to try to
address the fentanyl crisis and to restore military
communications severed after then-House Speaker Nancy Pelosi
visited Taiwan last year.
In a sign of how much remains to be done, there was no
evidence of progress on bigger issues like US curbs on microchip
exports, tariffs or tensions in the South China Sea, where
Chinese and US ships and planes have had a series of provocative
encounters.
Presidents Joe Biden and Xi Jinping emerged
from their first meeting in a year betting that a handful of
small victories will arrest a surge in US-China tensions that
has unnerved neighboring nations and threatened global economic
growth.
Expectations were low owing to deep-seated differences over
trade, Taiwan and human rights, and even the summit’s modest
accomplishments were hard-won. Those included deals to try to
address the fentanyl crisis and to restore military
communications severed after then-House Speaker Nancy Pelosi
visited Taiwan last year.
In a sign of how much remains to be done, there was no
evidence of progress on bigger issues like US curbs on microchip
exports, tariffs or tensions in the South China Sea, where
Chinese and US ships and planes have had a series of provocative
encounters.
July 24, 2023
SGH Insight
As might be expected, Premier Li also said at the meeting that stabilizing the real estate sector is one of the priorities of governments at all levels for H2 2023.
The State Council has solicited ideas from megacities such as Shanghai and Beijing. As both cities reported double-digit growth in real estate investment and new home sales in H1, the State Council will not adopt a national real estate stimulus policy, but will rather support first, second, and third tier city efforts to improve city-specific policies according to individual situations.
...As might be expected, Premier Li also said at the meeting that stabilizing the real estate sector is one of the priorities of governments at all levels for H2 2023.
The State Council has solicited ideas from megacities such as Shanghai and Beijing. As both cities reported double-digit growth in real estate investment and new home sales in H1, the State Council will not adopt a national real estate stimulus policy, but will rather support first, second, and third tier city efforts to improve city-specific policies according to individual situations.
In order to support the real estate sector in super-large and mega cities, the State Council also just ordered all 21 of these cities to promote the construction of both “Emergency and Dual Use” facilities in H2 2023, recreational facilities that can be used also in case of pandemic and emergencies. The State Council also ordered all 21 super-large and mega cities with a population greater than 5 million to speed up the transformation of the lower income “cities within cities,” to ensure the stability of the national real estate industry in H2 2023.
In order to support the real estate sector in super-large and mega cities, the State Council also just ordered all 21 of these cities to promote the construction of both “Emergency and Dual Use” facilities in H2 2023, recreational facilities that can be used also in case of pandemic and emergencies. The State Council also ordered all 21 super-large and mega cities with a population greater than 5 million to speed up the transformation of the lower income “cities within cities,” to ensure the stability of the national real estate industry in H2 2023...
...Going straight to the numbers, fiscal spending for H2 was bumped up from the original budget and is targeted to increase by just under 7%, 6.9% to be precise, from H1 spending.
In H1 2023 China’s fiscal spending rose 3.9% over the same period last year, to 13.39 trillion yuan. This 13.39 trillion-yuan figure, comprised of 1.67 trillion in central government spending and 11.72 in local government spending, represents 48.7% of the total 27.51 trillion yuan allocated for 2023, leaving 14.12 trillion yuan for H2 spending.
Thursday’s CFEAC meeting approved an additional allocation of 200 billion yuan to H2 2023 spending, to bring the total spending for H2 to 14.32 trillion yuan, about 7% higher than fiscal expenditures for H1. The extra 200 billion yuan also symbolically bumps year-on-year comps by more than 1 trillion above the 13.17 trillion that was spent in H2 of 2022, by 1.15 trillion to be precise.
The CFEAC predicts that these levels of spending will pull China’s H2 GDP growth into the 5.3-5.5% range.
The additional 200 billion yuan will be allocated as follows: 11.5 billion to subsidize targeted semiconductor and artificial intelligence enterprises, 52.5 billion to advance the “transformation of villages in super-large and mega cities,” essentially urban slums, 55 billion to spur the private economy, and 81 billion towards stimulating consumption. Local governments are urged to encourage more nongovernmental investments, including in integrated circuits, new materials, and next-generation information technology.
The CFEAC meeting stressed that fiscal policy should also be used to extend the duration of temporary policies such as value-added tax relief for micro and small-scale taxpayers.
Premier Li Qiang pledged an additional 46.5 billion yuan towards meeting the country’s “Made in China 2025” high tech objectives, of which 35 billion yuan will come from the secretive “Premier Fund.”
As might be expected, Premier Li also said at the meeting that stabilizing the real estate sector is one of the priorities of governments at all levels for H2 2023.
Market Validation
The State Council has solicited ideas from megacities such as Shanghai and Beijing. As both cities reported double-digit growth in real estate investment and new home sales in H1, the State Council will not adopt a national real estate stimulus policy, but will rather support first, second, and third tier city efforts to improve city-specific policies according to individual situations.
...As might be expected, Premier Li also said at the meeting that stabilizing the real estate sector is one of the priorities of governments at all levels for H2 2023.
The State Council has solicited ideas from megacities such as Shanghai and Beijing. As both cities reported double-digit growth in real estate investment and new home sales in H1, the State Council will not adopt a national real estate stimulus policy, but will rather support first, second, and third tier city efforts to improve city-specific policies according to individual situations.
In order to support the real estate sector in super-large and mega cities, the State Council also just ordered all 21 of these cities to promote the construction of both “Emergency and Dual Use” facilities in H2 2023, recreational facilities that can be used also in case of pandemic and emergencies. The State Council also ordered all 21 super-large and mega cities with a population greater than 5 million to speed up the transformation of the lower income “cities within cities,” to ensure the stability of the national real estate industry in H2 2023.
In order to support the real estate sector in super-large and mega cities, the State Council also just ordered all 21 of these cities to promote the construction of both “Emergency and Dual Use” facilities in H2 2023, recreational facilities that can be used also in case of pandemic and emergencies. The State Council also ordered all 21 super-large and mega cities with a population greater than 5 million to speed up the transformation of the lower income “cities within cities,” to ensure the stability of the national real estate industry in H2 2023...
...Going straight to the numbers, fiscal spending for H2 was bumped up from the original budget and is targeted to increase by just under 7%, 6.9% to be precise, from H1 spending.
In H1 2023 China’s fiscal spending rose 3.9% over the same period last year, to 13.39 trillion yuan. This 13.39 trillion-yuan figure, comprised of 1.67 trillion in central government spending and 11.72 in local government spending, represents 48.7% of the total 27.51 trillion yuan allocated for 2023, leaving 14.12 trillion yuan for H2 spending.
Thursday’s CFEAC meeting approved an additional allocation of 200 billion yuan to H2 2023 spending, to bring the total spending for H2 to 14.32 trillion yuan, about 7% higher than fiscal expenditures for H1. The extra 200 billion yuan also symbolically bumps year-on-year comps by more than 1 trillion above the 13.17 trillion that was spent in H2 of 2022, by 1.15 trillion to be precise.
The CFEAC predicts that these levels of spending will pull China’s H2 GDP growth into the 5.3-5.5% range.
The additional 200 billion yuan will be allocated as follows: 11.5 billion to subsidize targeted semiconductor and artificial intelligence enterprises, 52.5 billion to advance the “transformation of villages in super-large and mega cities,” essentially urban slums, 55 billion to spur the private economy, and 81 billion towards stimulating consumption. Local governments are urged to encourage more nongovernmental investments, including in integrated circuits, new materials, and next-generation information technology.
The CFEAC meeting stressed that fiscal policy should also be used to extend the duration of temporary policies such as value-added tax relief for micro and small-scale taxpayers.
Premier Li Qiang pledged an additional 46.5 billion yuan towards meeting the country’s “Made in China 2025” high tech objectives, of which 35 billion yuan will come from the secretive “Premier Fund.”
As might be expected, Premier Li also said at the meeting that stabilizing the real estate sector is one of the priorities of governments at all levels for H2 2023.
Bloomberg 7/28/23
China Vice Premier He Lifeng urged the country’s mega cities to actively advance the urban villages redevelopment in an effort to boost domestic demand, Xinhua News Agency reports citing a conference held in Beijing on Friday.
• He called for improving the living conditions of urban villages residents and to strengthen real estate structure
• He also noted the difficulties for urban villages redevelopment at the moment and urged to explore new ideas to solve complex issues like use of funds, land resumption and how to resettle people and industries
MT Newswires 7/25/23
Chinese Shares Rebound on Beijing's Pledge to Support Real
Chinese shares staged a recovery on Tuesday as Chinese top leaders pledged to provide further assistance to the property market, while also focusing on boosting consumer spending and tackling local government debt during a Politburo meeting.
The Shanghai Composite Index, the main gauge of Chinese stocks, rose 2.1%, or 67.36 points, to 3,231.52, marking an end to a three-day downturn. The Shenzhen Component Index climbed 1.4%, or 148.99 yuan, at 11,021.29, after enduring a seven-day rout.
The positive shift in sentiment followed the assurance from Chinese politicians to implement macroeconomic adjustments, strengthen domestic demand, and promptly optimize property policies.
During the meeting of the Political Bureau of the Communist Party of China (CPC) Central Committee, emphasis was placed on maintaining a proactive fiscal policy and a prudent monetary policy. Additionally, measures were discussed to extend, optimize, and ensure the implementation of tax and fee reductions, Xinhua News Agency reported.
The leaders also underscored the importance of promoting stable and sustainable development in the real estate market through concrete efforts.
Bloomberg 11/15/23
China plans to provide at least 1 trillion
yuan ($137 billion) of low-cost financing to the nation’s urban
village renovation and affordable housing programs in its latest
effort to shore up the struggling property market, according to
people familiar with the matter.
The People’s Bank of China would inject funds in phases
through policy banks with the money ultimately trickling down to
households for home purchases, the people said, asking not to be
identified discussing a private matter. Officials are
considering options including the so-called Pledged Supplemental
Lending and special loans, the people said, adding that the
government may take the first step as soon as this month.
China Vice Premier He Lifeng urged the country’s mega cities to actively advance the urban villages redevelopment in an effort to boost domestic demand, Xinhua News Agency reports citing a conference held in Beijing on Friday.
• He called for improving the living conditions of urban villages residents and to strengthen real estate structure
• He also noted the difficulties for urban villages redevelopment at the moment and urged to explore new ideas to solve complex issues like use of funds, land resumption and how to resettle people and industries
MT Newswires 7/25/23
Chinese Shares Rebound on Beijing's Pledge to Support Real
Chinese shares staged a recovery on Tuesday as Chinese top leaders pledged to provide further assistance to the property market, while also focusing on boosting consumer spending and tackling local government debt during a Politburo meeting.
The Shanghai Composite Index, the main gauge of Chinese stocks, rose 2.1%, or 67.36 points, to 3,231.52, marking an end to a three-day downturn. The Shenzhen Component Index climbed 1.4%, or 148.99 yuan, at 11,021.29, after enduring a seven-day rout.
The positive shift in sentiment followed the assurance from Chinese politicians to implement macroeconomic adjustments, strengthen domestic demand, and promptly optimize property policies.
During the meeting of the Political Bureau of the Communist Party of China (CPC) Central Committee, emphasis was placed on maintaining a proactive fiscal policy and a prudent monetary policy. Additionally, measures were discussed to extend, optimize, and ensure the implementation of tax and fee reductions, Xinhua News Agency reported.
The leaders also underscored the importance of promoting stable and sustainable development in the real estate market through concrete efforts.
Bloomberg 11/15/23
China plans to provide at least 1 trillion
yuan ($137 billion) of low-cost financing to the nation’s urban
village renovation and affordable housing programs in its latest
effort to shore up the struggling property market, according to
people familiar with the matter.
The People’s Bank of China would inject funds in phases
through policy banks with the money ultimately trickling down to
households for home purchases, the people said, asking not to be
identified discussing a private matter. Officials are
considering options including the so-called Pledged Supplemental
Lending and special loans, the people said, adding that the
government may take the first step as soon as this month.
November 8, 2023
SGH Insight
European Union finance ministers are slowly getting closer to an agreement on revisions to the Stability and Growth Pact (SGP) rules that govern member states’ fiscal budgets.
They will meet tomorrow (Thursday) to discuss how they feel about the latest "landing zone" - a proposal that narrows rather than solves all the differences between the EU north and south.
There seems to be agreement on the point however, that the overall focus of the new rules should be on net expenditure growth, as a single operational indicator that is completely in the hands of the government, and which would be set annually to make possible the agreed debt reduction path.
There is also agreement that defense spending should be a "relevant factor" for the Commission when it decides whether to start disciplinary steps against a government for breaching the 3% deficit limit – in effect if the excess is for military spending, the Commission will let it slide.
The deal that the EU wants to reach on the new fiscal rules this year will be among governments only. It is only expected in December since despite some overall progress, which both fiscal hawks and doves acknowledge, there is still a long way to go.
Market Validation
They will meet tomorrow (Thursday) to discuss how they feel about the latest "landing zone" - a proposal that narrows rather than solves all the differences between the EU north and south.
There seems to be agreement on the point however, that the overall focus of the new rules should be on net expenditure growth, as a single operational indicator that is completely in the hands of the government, and which would be set annually to make possible the agreed debt reduction path.
There is also agreement that defense spending should be a "relevant factor" for the Commission when it decides whether to start disciplinary steps against a government for breaching the 3% deficit limit – in effect if the excess is for military spending, the Commission will let it slide.
The deal that the EU wants to reach on the new fiscal rules this year will be among governments only. It is only expected in December since despite some overall progress, which both fiscal hawks and doves acknowledge, there is still a long way to go.
Bloomberg 11/9/2023
Le Maire said it was essential to have an agreement by the
end of the year, saying the “whole credibility of the EU is at
stake.”
“We are working very hard with Christian and the German
team,” Le Maire said. “We are making progress. The mood is an
excellent one. We are moving in the right direction.”
Lindner, speaking shortly after the French minister, said
substantial progress has been made and that he’s more optimistic
about achieving a political agreement this year, though he added
that much more work is needed.
“A Franco-German initiative could lead to a mutual
understanding among all member states,” he said. “Now it’s about
numbers, not only instruments.”
Le Maire said it was essential to have an agreement by the
end of the year, saying the “whole credibility of the EU is at
stake.”
“We are working very hard with Christian and the German
team,” Le Maire said. “We are making progress. The mood is an
excellent one. We are moving in the right direction.”
Lindner, speaking shortly after the French minister, said
substantial progress has been made and that he’s more optimistic
about achieving a political agreement this year, though he added
that much more work is needed.
“A Franco-German initiative could lead to a mutual
understanding among all member states,” he said. “Now it’s about
numbers, not only instruments.”
News and Events
SGH Macro Advisors hosts occasional roundtables and events for clients and senior policymakers.