Interest Rate Cut in China

Interest Rate Cut in China

Early Monday morning, the People’s Bank of China,
headed by Governor Pan Gong sheng, announced a reduction in the Loan Prime Rate (LPR).

 

Topic

Interest Rate

The Dollar

Gold

 

 

 

 

 

Interest Rate

According to the statement issued, the bank lowered the one-year LPR by 10 basis points to 3.35%,
contrary to expectations of maintaining the previous level of 3.45%.
This move is part of the bank’s ongoing efforts to provide direct support for mortgage interest rates,
aiming to revive demand in the debt-laden sector and bolster economic growth.

 

 

 

The Dollar

US Dollar Falls After Biden’s Withdrawal

The US dollar fell on Monday at the start of the week’s trading against a basket of major and minor currencies.
This decline followed President Joe Biden’s decision to withdraw from the upcoming US presidential election.

This decision paved the way for another Democratic candidate to face Republican candidate Donald Trump
in the upcoming November election.
President Joe Biden also announced via X platform his full support for his Vice President Kamala Harris
as the Democratic Party’s candidate in the next presidential election.
Biden urged his supporters to donate to Harris’s campaign.

 

 

 

 

 

 

Gold

Gold Prices Rise

Global gold prices rose during Monday’s trading as the US dollar declined.
This decline followed President Joe Biden’s decision to withdraw from the 2024 presidential race.

Investors turned to bullion as a hedge against political uncertainty in the United States.
The weaker dollar also increased the appeal of gold to buyers holding other currencies.
With Biden’s withdrawal,
the path is cleared for another Democratic candidate to face Republican candidate Donald Trump
in the upcoming election.

Upon accepting his nomination from the Republican Party on Thursday,
Trump reiterated his promise to cut corporate taxes and interest rates.
Analysts expect a Trump presidency to lead to stricter trade relations,
potentially resulting in tariffs that could drive up prices.

 

 

 

 

Interest Rate Cut in China

Slowdown in Job Market Boosts Hopes for a Fed Rate Cut

Slowdown in Job Market Boosts Hopes for a Fed Rate Cut: The latest monthly employment report
in the United States provided evidence that the economy is slowing down,
reinforcing expectations that the Federal Reserve will cut benchmark interest rates in the coming months
.

 

Content

Slowdown in the Job Market

Interest Rate Cuts

The Balancing Act at the Federal Reserve

Federal Reserve Chair’s Testimony

 

 

 

 

Slowdown in the Job Market Boosts Hopes for a Federal Reserve Rate Cut

– Federal Reserve Chair Powell’s testimony and inflation data will be closely watched this week.

– The employment report released on Friday showed that employers added fewer jobs
in June, and the unemployment rate rose to its highest since late 2021.

– The job market slowdown has bolstered expectations that the Federal Reserve will begin cutting interest rates starting in September.

– Federal Reserve Chair Powell’s testimony before Congress twice next week and the release
The initial readings on June inflation are expected to provide clues on the potential timing of interest rate cuts.

The latest monthly employment report in the United States provided evidence that the economy is slowing down,
reinforcing expectations that the Federal Reserve will cut benchmark interest rates in the coming months.

The U.S. Bureau of Labor Statistics said on Friday that employers added fewer jobs in June than the previous month,
and the unemployment rate rose to its highest level since late 2021.

The Bureau of Labor Statistics also revised the job growth figures for the previous two months downward,
indicating that the Federal Reserve’s high interest rate policy aimed
Slowing economic activity and taming inflation have had their intended effects.

Economists said in reports released on Friday, “Overall, the report aligns with the ongoing slowdown in growth and inflation.
Job gains are still not slowing as fast as expected, but the underlying pace is decelerating.”

 

Markets Betting on a September Rate Cut

Stocks rose, and Treasury yields fell following the release of the jobs data,
with increased optimism that the U.S. central bank might begin cutting the federal funds rate,
which is currently at its highest level in 23 years.

According to the CME Group’s FedWatch tool, which predicts interest rate movements based on federal funds futures trading data,
traders are pricing in a 77% chance that the Federal Reserve will cut benchmark interest rates
at the Federal Open Market Committee meeting in September.
This compares to a 64% probability priced in a week earlier.

According to recent data, the June jobs report adds to evidence
from other recent growth indicators suggesting the Federal Reserve is tight enough.
Therefore, this data strengthens the likelihood of a rate cut in September,
although this outcome requires continued evidence of moderated inflation in the coming months.

 

 

 

The Balancing Act at the Federal Reserve

Federal Reserve officials have said progress is being made in combating inflation,
but they also stated that they need to see more data confirming that price pressures are under control.

Federal Reserve Chair Jerome Powell said last Tuesday during a discussion at a European Central Bank conference in Portugal:
“We want to be more confident that inflation is moving sustainably toward the
(Federal Reserve’s annual target) of 2% before we start the process of reducing the extent of our policy tightening.”

The latest reading of the Federal Reserve’s preferred inflation measure,
the Personal Consumption Expenditures Index, showed that inflation in the twelve months ending in May slowed to 2.6%.

Federal Reserve officials fear moving too quickly to cut interest rates and risking reigniting inflation.
At the same time, they are closely monitoring labor market trends
to ensure that high interest rates are not causing harm.
The Federal Reserve has a dual mandate of maintaining price stability and promoting maximum employment.

Powell said last week: “We have to balance the two,
and given the strength of the economy, we can handle this carefully.”

 

Federal Reserve Chair’s Testimony and June Inflation Data Approaching

Powell will provide an overview of current economic conditions before
the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday.

Lawmakers are likely to press Powell on the impact of high interest rates
on the economy and the timeline for reducing the federal funds rate,
which affects the costs of everything from mortgages to student loans.

Fed Minutes Show Agreement on Prolonged Higher Interest Rates

Fed Minutes Show Agreement on Prolonged Higher Interest Rates:
Federal Reserve officials agreed earlier this month to keep interest rates higher for longer,
Many question whether monetary policy was tight enough to bring inflation down to its target.

 

 Contents
Federal Open Market Committee Meeting
 Interest Rates
Monetary Policy

 

 

 

Federal Open Market Committee Meeting

The minutes of the two-day Federal Open Market Committee (FOMC) meeting,
which concluded on May 1,
revealed that while participants believed monetary policy was “well positioned,”
several officials expressed a desire to tighten it further if necessary.

“Participants noted disappointing inflation readings during the first quarter,”

according to the minutes released Wednesday in Washington.
The minutes indicated,
“It will take longer than previously expected to gain greater
confidence that inflation is moving sustainably towards 2%.”

 

Interest Rates

Keeping interest rates higher for a longer period:
The minutes also stated that officials discussed maintaining interest rates
At their current levels, for a longer time
“if inflation does not show signs of moving sustainably towards 2%,
or reducing monetary policy restrictions if there is an unexpected weakening in labor market conditions.”

Following the rise in inflation in the first quarter,
Federal Reserve officials said they would keep interest rates
at their highest level in 23 years for longer than initially anticipated.

Federal Reserve Chair Jerome Powell stated in his May 1
Press conference that lowering borrowing costs would not be appropriate
until the central bank has greater confidence that inflation is moving sustainably towards its 2% target.

He reiterated at an event in Amsterdam on May 14,
“We will need to be patient and allow restrictive policy to do its work.”

Is Monetary Policy Restrictive Enough?

Although officials generally considered monetary policy restrictive,
policymakers noted that higher interest rates might have
less impact than in the past, and the neutral long-term rate could be higher than previously thought.

The minutes noted, “Many participants commented on their uncertainty
regarding the extent of the policy’s restrictiveness.”

Since the Federal Reserve meeting,
April’s consumer price data showed a modest inflation slowdown
after three months of higher-than-expected figures.
While price growth remains above the Federal Reserve’s target,
recent figures have alleviated some concerns about a resurgence in inflation.

The economy continues to grow at a robust pace,
although recent reports on retail sales and manufacturing indicate a decline in demand.
The labor market remains resilient but also shows signs of slowing down.
Job growth in April was the slowest in six months.

 

Fed Minutes Show Agreement on Prolonged Higher Interest Rates

Expectations for the Upcoming Federal Reserve Meeting Minutes

Expectations for the Upcoming Federal Reserve Meeting Minutes: The minutes from this week’s Federal Reserve meeting are likely to be hawkish.
The board members may debate the appropriateness of the current interest rate level.

 

Content:

 New Historical Levels for Gold

 Death of the Iranian President and Foreign Minister in a Helicopter Crash

 Expectations for the Upcoming Federal Reserve Meeting Minutes

 

 

 

 

New Historical Levels for Gold

Global gold prices witnessed a historic rise during Monday’s trading session.
The slowdown in U.S. inflation boosted expectations that the Federal Reserve would soon implement its first interest rate cut.
Meanwhile, silver prices surged to their highest levels in more than 11 years.

Data released last week showed signs of slowing inflation in the United States,
leading traders to expect a 65% chance of a U.S. interest rate cut by September.
Due to the weakening dollar index, gold priced in the U.S. currency has become more attractive to buyers holding other currencies.

 

Death of the Iranian President and Foreign Minister in a Helicopter Crash

Iranian President Ebrahim Raisi and Foreign Minister Hossein Amir-Abdollahian died in a helicopter crash.
The accident occurred after President Raisi visited Azerbaijan,
where the “Qiz Qalasi” dam was inaugurated in collaboration with Azerbaijani President Ilham Aliyev.
The helicopter crashed while returning to Tabriz, in the Dizmar forests between
the towns of Ouyi and Bir Davood in East Azerbaijan Province.

On Monday, the Iranian government issued an official statement mourning President Raisi,
the Foreign Minister, and all other helicopter passengers.

Expectations for the Upcoming Federal Reserve Meeting Minutes

The minutes from the upcoming Federal Reserve meeting, scheduled to be held this week,
are likely to have a hawkish tone,
with a potential debate among the board members on the appropriateness of the current interest rate level.
The minutes are expected to be more hawkish in tone than
the press conference held by Federal Reserve Chairman Jerome Powell.

During the May Open Market Committee meeting,
Federal Reserve members decided to keep interest rates unchanged.
Powell indicated in the press conference following the decision that raising interest rates was not the next expected step.

 

Expectations for the Upcoming Federal Reserve Meeting Minutes

Consumer Price Index report will clarify whether the inflation path is still rugged

 Consumer Price Index report will reveal whether inflation remains rugged: This week, investors will discover whether Wednesday’s release
of the Consumer Price Index will show the persistence of price pressures. Will inflation face another “bump” along the way?

 

Content
Details

Federal Reserve

 

Details

After 2023 saw a decline in inflation rates, 2024 showed that prices appeared “steady,”
with inflation rates tending to rise again over the past few months.
This includes the annual inflation rate for the Consumer Price Index at 3.5% in March,
which has risen for the third consecutive month. Before that, the Producer Price Index data will be released on Tuesday,
showing price changes for wholesalers, which can be an indicator of upcoming price changes at the consumer level.

Some Federal Reserve officials have described the recent rise in inflation rates as “rugged,”
considering the spike in prices as a signal of the necessity

to keep interest rates at their current high levels for decades.
Another high inflation reading could weaken hopes for a cut in interest rates.

 

 

 

 

Federal Reserve

officials from the Federal Reserve have expressed the need to be cautious before cutting interest rates.
Federal Reserve Governor Michelle Bowman stated she does not expect cutting interest rates in 2024 would be appropriate,
while Dallas Federal Reserve President Lorie Logan said it is still too early to consider reducing interest rates.
Meanwhile, data released on Friday pointed to a jump in consumer inflation expectations,
although the sharp decline in American consumer confidence added to the evidence that the economy is losing momentum.
The markets are still pricing in September as the start of the easing cycle.

Investors will also hear from several Federal Reserve officials this week, including Governor Jerome Powell,
who will speak to the Foreign Bankers’ Association in the Netherlands on Tuesday.
Federal Reserve Vice Chair Philip Jefferson, Cleveland Federal Reserve President Loretta Mester,
Atlanta Federal Reserve President Raphael Bostic,
and Philadelphia Federal Reserve President Patrick Harker is also on the calendar this week.

 

Consumer Price Index report will reveal if inflation remains rugged.

Federal Reserve Chair Powell keeps the door open for a rate cut in July

Federal Reserve Chair Powell keeps the door open for a rate cut in July:
Powell outlined three possible paths for monetary policy

 

Content

Press Conference Details

Monetary Policy

Possibility of raising interest rates

 

 

 

 

Press Conference Details

Here are more details on the four main points made at Powell’s press conference:

forecasts are likely to show that the majority of Federal Reserve officials favor two or fewer rate cuts this year.
In March, the Federal Reserve’s “dot plot” suggested that most officials believe three rate cuts would be appropriate this year.
However, with the hot inflation readings since that meeting,
economists have recognized the need to recalibrate the economy.
Although the Federal Reserve did not release a dot plot on Wednesday,
it will do so at the next meeting in mid-June.

 

Monetary Policy

In response to journalists’ questions, Powell outlined three possible paths for monetary policy.
Two paths could lead to rate cuts this year – one where inflation moves toward a decrease towards 2%,
and another where the labor market begins to weaken.

The other path is no cuts this year, with inflation moving sideways.
This leads to a dot plot in which the majority
of Federal Reserve officials lean towards two or fewer rate cuts this year.

The next Federal Open Market Committee meeting is scheduled for June 11-12.

Federal Reserve officials will have three more monthly readings
of the Personal Consumption Expenditures Index before the meeting.

 


Possibility of raising interest rates

The chances of the Federal Reserve raising interest rates are very slim.

At the beginning of his press conference,
Powell said he believes it is “unlikely” that the next move in interest rates will be a rate hike.

After being pressed by journalists about whether there was any
discussion of a potential rate hike at this Federal Reserve meeting,
Powell stumbled a bit before saying, “The policy focus was really
on what to do about maintaining the current level of restrictions.”

Powell says he expects inflation to recede this year and,
stepping somewhat away from his previous practices, offered his personal inflation forecasts for the coming months.

Powell said: “My personal expectation is that we will start to see more declines in inflation rates this year.”

He stated that he is unsure if that will be sufficient progress to stimulate a rate cut.

Powell added that he expects lower market rents to eventually reduce the
housing costs that have led to rising consumer price inflation.
Powell said: “I am confident that it will come, but I am not very confident about the timing.”

 

 

Federal Reserve Chair Powell keeps the door open for a rate cut in July

Oil builds on a strong quarterly rise focusing on Chinese demand

Oil builds on a strong quarterly rise focusing on Chinese demand:
Oil prices stabilized after registering significant gains in the first quarter,
driven by hopes of a notable recovery in China and the associated increase in demand.

content
Details

 

 

 

Details

Oil prices rose this year due to “OPEC+” cutting supplies to push prices up and offset
the increase in production from outside the group.
The alliance is expected to endorse its current production policy at its meeting held online on Wednesday.
Also contributing to price support were Ukrainian attacks
on Russian energy infrastructure and escalating tensions in the Middle East.

The price of Brent crude for June remained around $87 per barrel,
following a nearly 14% increase in the prices of the nearest-due
during the first three months of the year,
West Texas Intermediate crude exceeded $83.
March saw a recovery in the Chinese industrial sector, halting a five-month decline,
which increased optimism about improved consumption in the largest oil importer.

A note from Goldman Sachs stated that robust oil demand in Europe also helped boost prices,
noting weak US supply growth and the potential extension of “OPEC+.”
cuts until 2024 were also bullish factors.
Last month, the bank predicted that commodities would rise this year as central banks cut interest rates,
supporting industrial and consumer demand.

Trading volumes are expected to be low at the start of the week, as many economies,
including the United Kingdom, are on the Easter holiday.

Oil builds on a strong quarterly rise, focusing on Chinese demand.

The US dollar index declined

The US dollar index declined: The value of the dollar index decreased to 103.18 during last week’s trading
Amid investors’ anticipation of the disclosure of annual personal consumption expenditures

 

Content
US dollar index
Personal consumption expenditures

US dollar

The US Dollar Index retreated from its yearly peak around 104.85 to achieve a decline
It declined to 103.18 during last week’s trading.

During this week’s trading, investors are awaiting many important data
On top of this are annual personal consumption expenditures during trading on Thursday,
February 29, where the monthly close is.

Economists have mixed expectations for the upcoming numbers
They expect stability around 2.9%, as in the previous reading, without change

The importance of the event comes from the fact that the US Federal Reserve is fighting high inflation
Through monetary tightening, he promises the markets three rate cuts during the current year
Especially after the bank’s preferred inflation index dropped to 2.9%.
The question that occupies the minds of traders in the financial markets now
is when the US Federal Reserve will start reducing interest rates,
and investors’ expectations regarding the reduction during next May will fall below 50%.

In the latest statements, bank officials explained the need to approach inflation targets
About 2% before the start of the US interest rate cuts.

 

 

Personal consumption expenditures

In the case of a decline less than expected, the last reading was below 2.9%.
It may enhance the negative scenario for the dollar index,
while at that time, it will support the bank’s decision to reduce interest rates.
The bad scenario for the Fed is that inflation will rise again
The highest level of 2.9% at the time will support prolonged maintenance
of the US interest rate during the current year
Before the reduction begins, it may also support some interest reductions of less than three times
This will prompt investors to increase their purchase of the US dollar
We may then witness more positivity for the dollar index and a return again

Close to its highest levels this year, approximately 105.

 

The US dollar index declined

Inconstancy in oil prices with geopolitical tensions

Inconstancy in oil prices with geopolitical tensions: Oil prices declined for the second day in a row on Monday,
as unfavourable economic factors continued to weigh on global demand expectations,
outweighing geopolitical concerns in the Middle East and the attack on a Russian fuel export terminal earlier this week.

 

Topics

Continuing global geopolitical tensions

US interest

Japanese Central Bank

The People’s Bank of China

 

 

Continuing global geopolitical tensions

Despite reports of a Ukrainian drone attack on a Russian fuel export terminal, There was no significant change in prices.
The Russian gas-producing company Novatek announced on Sunday that it was forced to suspend
some of its operations at the station located on the Baltic Sea coast due to a fire.

In the Middle East, the Gaza war is intensifying, and the United States bombed an anti-ship missile
that Yemen’s Houthis were preparing to launch toward the Gulf of Aden on Saturday.

Houthi attacks in the Red Sea and Gulf of Aden have disrupted global trade
also led to a decrease in the supply of oil in European and African markets.

 

Reducing US interest levels date

Last week, Federal Reserve officials announced that they need more data
on inflation before deciding whether to cut interest rates.

These statements came in light of improving consumer sentiment in the United States and a strengthening labour market,
as well as strong retail sales data that indicate a continued strong economy.

Fitch expects the pace of interest rate cuts to be slower than financial market expectations
and adds that it does not expect any cut by the Federal Reserve before June or July 2024,
given the stability of wage inflation and service prices.

The US dollar index saw a decline,
while 10-year US Treasury yields fell from the highest level in more than a month to 4.1111%.

Investors are awaiting the release of the US PMI report on Wednesday,
the fourth-quarter GDP estimates on Thursday, and personal spending data on Friday.

 

The Japanese Central Bank meeting and its impact on the markets

The yen saw a rally in the Asian market on Monday against several global currencies,
as it began to recover from a two-month low against the US dollar.
The Japanese yen is heading to achieve its first gain in the last six days,
as selling operations stopped with the start of the Central Bank of Japan meeting.

The first meetings of 2024 begin later today in Tokyo, with decisions expected on Tuesday,
and the general outlook is for the continued use of ultra-loose monetary policy tools without any major change.

This rise also supports that yields on US Treasury bonds have stopped rising,
pending more evidence on the path of interest rate cuts by the Federal Reserve during this year.

 

 

The People’s Bank of China keeps lending rates the same

Early Monday morning, the People’s Bank of China, headed by Governor Pan Gongsheng,
announced the decision to maintain the initial lending interest rate, according to market expectations.
This decision comes in light of strong data for retail sales and industrial production,
which reflects the gradual recovery of economic growth in the country.

According to the statement, the People’s Bank of China kept the initial interest rate on one-year loans at 3.45%.
According to market expectations, the bank also decided to keep the initial interest
rate on loans for five years unchanged at 4.20%.

This decision comes from the People’s Bank of China after it maintained other key interest rates last week,
and the bank stressed that there is still room for further monetary easing,
but also indicated the need to use all other monetary policy tools.

 

Inconstancy in oil prices with geopolitical tensions

Will Turkey’s Central Bank Continue to Raise Interest Rates?

Will Turkey’s Central Bank Continue to Raise Interest Rates?

Opinions differ on whether interest rates in Turkey have peaked.
Goldman Sachs expects that the latest increase in Turkish interest rates
will be the last in the current tightening cycle,
while other banks expect another rate hike in January.

 

Topic

Goldman Sachs’s Forecast

Other Banks’ Forecasts

Conclusion

 

 

 

 

 

Goldman Sachs’s Forecast

In a report, analysts Clemens Graf and Basak Edizgil say that interest rates will not rise above the current level of 42.5% unless there is a surprise in the inflation rate. They expect that lending costs will start to decline after the third quarter of next year, reaching 25% by the end of the year.

Goldman Sachs’s forecast is based on several factors, including:

  • The decline in Turkey’s inflation rate from a peak of 85% in October last year to 61% in November of this year.
  • The Turkish Central Bank’s forecast that inflation will fall to 36% by the end of this year.
  • External pressure on the Turkish Central Bank to cut rates in order to support exports and attract foreign investment.

 

 

 

 

 

Other Banks’ Forecasts

Other banks, such as Morgan Stanley, Deutsche Bank, and Bank of America Securities, expect another rate hike in January.

This forecast is based on several factors, including:

  • The continued rise in Turkey’s inflation rate, with analysts predicting that it will accelerate to 70% in the coming months.
  • The Turkish Central Bank’s desire to fully control inflation before starting to cut rates.

 

 

Conclusion

It is still unclear whether interest rates in Turkey have peaked. This will depend on several factors, including the evolution of Turkey’s inflation rate and external pressure on the Turkish Central Bank.

In the end, the Turkish Central Bank will have to make a decision on interest rates based on its assessment of the economic situation in the country.

 

 

 

Will Turkey’s Central Bank Continue to Raise Interest Rates?