Breaking News
Investing Pro 0
Cyber Monday Extended SALE: Up to 60% OFF InvestingPro+ CLAIM OFFER

Take Five: Time to be forceful?

Economy Jul 29, 2022 09:10PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: A boy refreshes himself in a fountain during hot weather as a heatwave hits Europe, in Brussels, Belgium July 19, 2022. REUTERS/Yves Herman
 
GS
+1.30%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
JPM
+1.19%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
GAZP
-0.38%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
TSLA
+7.67%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

(Reuters) - Britain and Australia may opt for 50 basis-point rate hikes in coming days, given the high risk that markets will punish any central bank that hesitates to crack down on multi-decade high inflation.

But policymakers must also contend with cooling economies, with U.S. post-COVID job creation possibly topping out and a gas supply crunch potentially throwing Europe into recession.

Here is your week in markets from Dhara Ranasinghe, Karin Strohecker and Sujata Rao in London; Kevin Buckland in Ottawa and Lewis Krauskopf in New York.

1/ WINTER IS COMING

Even as Europe confronts record-high temperatures, gas shortages have got officials bracing for a cold, dark winter.

Russia's Gazprom (MCX:GAZP) has cut flows through the Nord Stream 1 pipeline to a fifth of capacity, and the EU is urging members to curb usage and store gas for winter.

European gas prices are up almost 200% so far this year and the longer this shock continues, the worse economies will fare.

With Germany's mighty industrial complex accounting for 36% of the country's gas demand, business activity is slowing there and consumer confidence has hit record lows. Eurozone recession may arrive by early-2023, JPMorgan (NYSE:JPM) warns.

European gas prices soar European gas prices soar: https://tmsnrt.rs/3vjIvjT

2/BOE-ING

The Bank of England started early, but has raised rates in smaller steps than its peers which are tightening policy in 50, 75 and even 100 basis-point increments. But a half-percentage point rise to 1.75% is possible on Aug. 4, which would be the biggest since 1995.

JPMorgan and HSBC are among those predicting a 50 bps move. While only three BoE policymakers favoured 50 bps at the last two meetings, data since then has shown inflation reaching 9.4%, a 40-year high. It could hit 12% by October - six times the BoE target.

Governor Andrew Bailey has pledged to act forcefully if needed. Yet, given the BoE sees barely any UK economic growth before 2025, a Reuters poll forecasts, by a slim margin, the BoE will stick with 25 bps.

The bank must then contend with the risk that a smaller hike triggers a sterling selloff, further fanning inflation.

Under pressure: https://tmsnrt.rs/3oBbVWN

3/ U.S. JOBS

A barrage of Federal Reserve rate hikes is slowing U.S. house price growth and forcing consumers to tighten their belts. Friday's non-farm payrolls data will show whether it is also impacting the red-hot employment market.

Given the Fed now favours a data-dependent approach over explicitly guiding markets on policy, the jobs figures and other numbers due over the next eight weeks until the next Fed meeting, carry added importance.

Employers are already becoming less enthusiastic on taking on staff, with corporations from Tesla (NASDAQ:TSLA) to Goldman Sachs (NYSE:GS) warning of slower hiring.

Analysts polled by Reuters estimate 255,000 jobs were added last month, following June's forecast-beating print of 372,000. A far smaller number may bolster the view that the Fed has reached "peak-hawkishness." [L1N2Z8227]

Job market recovery: https://tmsnrt.rs/3S5L3M1

4/HIGHER DOWN UNDER

Traders have eased off bets on a 75 bps Australian rate hike at Tuesday's Reserve Bank meeting. But with inflation at the hottest in 21 years, a half-point hike looks like a done deal.

    Latest data showed consumer prices climbing at a 6.1% annual pace, more than double the 2-3% target, and double the pace of wage growth. And Treasurer Jim Chalmers warns it will get worse before it gets better.

RBA Governor Philip Lowe has indicated rates, currently at 1.35%, will rise toward a "neutral" level of at least 2.5%, though markets expect them to top out at 3.75%.

Initially wrong-footed by flaring inflation, Lowe has overseen three consecutive hikes since May - the most aggressive action in decades. That tardiness, and the way it communicated its intentions, have prompted a government probe into RBA policies and governance.

RBA looks for a path back to inflation target: https://tmsnrt.rs/3vlX46p

5/BRAZIL BREATHER

The four countries investors once grouped under the BRIC umbrella - Brazil, Russia, India and China - were always vastly different. That divergence shows up these days even in their relative monetary policy direction.

Uber-hiker Brazil, which jacked up rates by 1,125 basis points since March 2021, is expected to keep the benchmark at 13.35% when policymakers meet on Wednesday and leave it there for the remainder of 2022 before easing in 2023.

Meanwhile for India, a late entrant in the current round of global monetary policy tightening, the only way is up. The central bank intervened heavily in recent weeks to lift the rupee from a succession of record lows. A Reuters poll predicts Indian policymakers, who meet on Thursday, will lift rates from the current 4.90% by another three-quarters of a percentage points by end-year.

BRIC policy rates: https://tmsnrt.rs/3JcL8ti

Take Five: Time to be forceful?
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email